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Turkish lira plummets to new low, central bank intervenes

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The Turkish lira crashed as much as 7 percent to a new record near 15 to the dollar on Monday, gripped by worries over President Tayyip Erdogan’s risky new economic policy and prospects of another interest rate cut on Thursday.

The central bank announced its fourth market intervention in two weeks, selling dollars, as the slide to 14.99 left the lira worth just half of its end-2020 value.

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Last week, the bank moved to keep the lira (TRY) below 14 as depreciation fuels inflation in a big emerging market economy which depends heavily on imports.

“Last week’s apparent relative stability of TRY was artificial and non-sustainable. Now we see the build-up pressure unfolding, driving lira weakness to the next level,” Commerzbank said in a note. “Any further attempts of CBT to stabilize TRY by interventions is probably bound to fail.”

By 1044 GMT, the lira had trimmed losses in thin market trading and stood at 14.25 - still 2.5% weaker on the day.

Turkey’s central bank, under pressure from Erdogan, is expected to cut its policy rate by 100 basis points to 14% this week, a Reuters poll showed on Friday, despite inflation soaring to 21.3% last month.

However, there was scepticism about whether the bank would go through with it given the volatility.

“Honestly I don’t think they can carry out another 100 bps cut this week. The lira has been very volatile for the past few weeks, and S&P has downgraded to a negative outlook. The markets will have very little tolerance to such a move,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Erdogan was expected to hold talks with Central Bank Governor Sahap Kavcioglu, Finance Minister Nureddin Nebati and the heads of state banks in Istanbul on Monday, sources told Reuters.

Turkey’s sovereign dollar bonds dropped, with the 2034 issue down 0.8 cents, according to Tradeweb data. Lira implied volatility gauges jumped, data from Fenics showed.

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