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Economy

Turkish lira hits weakest level in three weeks

Published: Updated:

The Turkish lira hit its weakest level against the dollar in nearly three weeks on Wednesday, remaining under pressure after the government defended a former finance minister’s policies.

Amid the weakness, the central bank raised reserve requirement ratios for Turkish lira deposits by 200 basis points, saying the move would improve the effectiveness of its monetary policy transmission.

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The lira weakened as far as 7.15 and stood at 7.12 against the US currency at 0748 GMT, weakening from a close of 7.11 on Tuesday.

Dealers said the lira was currently underperforming emerging market peers, having outperformed them since November, when Finance Minister Berat Albayrak and Central Bank Governor Murat Uysal were replaced.

The lira had subsequently rallied more than 20 percent on expectations of tight monetary policy and a more orthodox approach after years of perceived mismanagement.

Dealers said this week’s lira losses were triggered by President Tayyip Erdogan’s defense of Albayrak, whose time in office coincided with a sharp slide in the lira. The central bank’s FX reserves were also badly depleted due to a policy of state banks selling $130 billion in dollars to support the lira.

JPMorgan has told clients it was prudent to take profits on bullish bets on the lira given its recent rapid rise.

As a result of the central bank’s latest moves, lira denominated required reserves were expected to increase by approximately 25 billion lira ($3.5 billion), while total required reserves in FX and gold are expected to decrease by $500 million, the bank said.

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