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Turkish lira crashes to new low against the dollar

The Turkish lira is in free-fall [AFP]

Date of publication: 23 May, 2018

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Turkey's lira is in free-fall, losing five percent of its value in one day and adding pressure on the central bank to increase interest rates, which could slow the economy.

Turkey's lira hit a new low against the dollar on Wednesday, losing five percent of its value over the past 24 hours.

The currency is now trading at 4.8 per dollar, with pressure on the central bank to hike interest rates as the lira goes into free-fall.

The lira has now lost 20 percent of its value to the dollar this year.

Turkey's central bank is set to meet on 7 June to discuss monetary policy, with pressure on the body to sharply increase interest rates.

But doing so will make borrowing more expensive and likely have a negative effect on economic growth.

This is something Turkey President Recep Tayyip Erdogan will look to avoid.

Although he does not control interest rates, he wields enormous power in the country and likely try to pressure the central bank.

"[If the central bank] continues to bow to pressure from Erdogan and refrains from raising interest rates, that would lead to an even sharper fall in the currency," Jason Tuvey, an economist with Capital Economics in London, told AP.

The Turkish lira's collapse is in part due to the US Federal Reserve hiking interest rates, which has encouraged investors to place their money in the US, rather than other economies.

Ankara is hugely reliant on foreign capital and has suffered from this trend.

Erdogan also hurt the lira last week by saying he would grant greater powers for presidents over monetary policy.

Jameel Ahmad, analyst at FXTM forex brokers, told AFP that "the currency is in complete freefall" and Erdogan's comments on giving himself greater economic had been a "catalyst" for this.

Over the past month alone the lira has lost 18 percent of its value compared to the dollar.

On Wednesday, the lira lost over 3.5 percent of its value, after it took a hammering in Asian markets following the offloading of Turkish assets by a Japanese investor.

Turkey has been rocked by instability since an attempted in military coup in 2016 and rounding up thousands of people in a hunt for coup sympathisers.

Ankara has also been at loggerheads with the US, over its hosting of anti-Erdogan cleric Fethullah Gulen and support for Kurdish forces in Syria.

Some in Turkey's leadership have blamed "foreign powers" for manipulating the lira to damage Erdogan's chances of winning next month's election.

"Those who believe that by manipulating the dollar they will lead to results that will harm the nation and their pockets and change the election result, are mistaken," the state-run Anadolu Agency quoted deputy Prime Minister Bekir Bozdag as saying.

Agencies contributed to this story.

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