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Turkish lira sinks further into record territory vs dollar

ISTANBUL: Turkey’s lira weakened to another record low beyond 9 versus the dollar on Tuesday, weighed down by uncertainty over political pressure for further interest rate cuts and a bearish research note from Barclays bank.

The lira hit a fresh all-time low of 9.0410 against the dollar, which itself firmed, after closing at 9.00 on Monday. It edged back to 9.0275 by 0720 GMT.

It has weakened nearly 18% against the US currency so far this year, with nearly half of its losses since the start of September. In turn, this has exacerbated a rise to nearly 20% in headline inflation for import-heavy Turkey.

Barclays advised clients to sell Turkish lira over the next three months. It expects “aggressive” easing through year end and “front-loaded” currency depreciation on the back of foreign capital flight, the bank said in a note.

The central bank unexpectedly cut its policy rate by 100 basis points to 18% last month in what analysts viewed as fresh evidence of political interference by President Tayyip Erdogan, a self-described enemy of interest rates.

The next monetary policy committee meeting is on Oct. 21.

Citing sources, Reuters reported on Friday that Erdogan is losing confidence in Central Bank Governor Sahap Kavcioglu, less than seven months after he sacked his predecessor, because the policy stimulus came too late for the president.

Responding to questions from a parliamentary commission on Monday, Kavcioglu said last month’s rate cut was not a surprise and had little to do with the subsequent lira sell-off.

On conference calls with investors last week, Kavcioglu provided more dovish signals but gave no clear indication whether he sees more rate cuts ahead, participants told Reuters.

“There was no clear forward guidance but a strong preference to ease as much as they can get away with,” said Blaise Antin, head of EM sovereign research at TCW in Los Angeles, who was on a call.

The bank is “walking a tightrope between the exchange rate and the presidential palace,” he added.

Data on Tuesday showed a pick up in factory activity, with industrial production jumping a greater-than-expected 13.8% year-on-year in August.

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