Turkey’s lira has fallen to fresh record lows as the currency continues its precipitous decline over the course of the last year.
The lira hit lows of 3.8951 lira to the dollar on Tuesday amid more signs of weakness in the Turkish economy. The dollar had strengthened 1.71 per cent against the lira at the time of publication.
Turkey’s current account deficit grew to $2.27bn in November as tourist numbers continue to decline. A growing current account deficit indicates a country is borrowing more money from other countries.
On Tuesday the Turkish central bank lowered the reserve requirements on banks trading in foreign exchange in an attempt to boost the currency, but the measure has had little effect.
Ipek Ozkardeskaya, an analyst at London Capital Group, said: “The attention shifts to the Turkish monetary policy makers. The Central Bank of Turkey is suffering from a massive loss of credibility. Turkey faces a dangerous threat to its parliamentary regime. Political pressures and social unrest are on the menu. We stay clear from lira and lira denominated assets.”
The economy has been severely damaged in Turkey as tourist numbers have been hit by political crisis and terrorist attacks as well as the spillover of ethnic conflict from the Syrian border.
The Russian ambassador was murdered near the end of last year by a Turkish policeman who shouted protests about Russia's action in Syria.
At the end of last July, Turkey was thrown into a state of emergency as soldiers attempted to take power in a coup. However, President Recep Tayyip Erdogan reasserted control and proceeded with a crackdown on perceived enemies of the state, including journalists and academics.
Turkey’s currency has been one of the worst-performing worldwide in the past year, with a peak to trough fall of almost 40 per cent against the dollar during the last 12 months.
Erdogan previously received ridicule after he urged Turkish citizens to sell foreign currency for the lira at low rates to try to avoid the need for higher interest rates. Higher interest rates could stabilise the lira but risk jeopardising the wider economy.