Lira Falls as Higher U.S. Yields Pile Pressure on Central Bank

The Turkish lira weakened the most among emerging markets as concerns mounted that monetary policy is not tight enough to anchor the currency.

The lira fell as much as 2.5% against the dollar, with losses accelerating as the currency pair broke past its 100-day moving average, a key technical support level and the lowest since December. The rout comes as the yield on 10-year U.S. Treasuries briefly pushed beyond 1.6% on Monday, spurring an advance in the greenback and a sell-off across riskier assets.

Lira Falls as Higher U.S. Yields Pile Pressure on Central Bank

While central bank in Turkey has raised borrowing costs by 675 basis points since November, inventors are concerned it may now shy away from further interest-rate hikes given political pressure to support the economy. They are also worried the authority may resort to so-called stealth tightening measures, which failed to stem the lira’s slide to a record last year.

The central bank’s decision last week to increase borrowing costs by raising lira reserve requirement ratios may “mark a return to a former monetary-policy approach,” said Emre Akcakmak, a portfolio adviser at East Capital in Dubai. Recent inflationary pressures along with rising oil and other commodity prices are also weighing on the currency, he said.

Consumer price growth accelerated for a fifth month in February to 15.6%. The central bank’s one-week repo rate stands at 17%. Policy makers next meet to set borrowing costs on March 18.

In a presentation posted on its website this month, the central bank said “additional monetary tightening will be delivered if needed.”

The lira was trading 2.2% lower at 7.6989 per U.S. dollar as of 6:48 p.m. in Istanbul, weakening for a fifth straight day. It earlier touched a low of 7.7172.

©2021 Bloomberg L.P.

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