The lira led losses in emerging markets to extend last week’s slide of around 4 percent.
With Turkey’s central bank sitting on the sidelines observing a meltdown of the lira and double-digit inflation, one brokerage is looking for help from a higher power.
“God help Turkey,” Istanbul-based broker Alnus Yatirim said in the sign-off to its morning note to clients on Monday. “We’re faced with a central bank that is watching the market when it needs to lead and direct it.”
The comments come as Turkey competes with Argentina, Angola and Venezuela for the world’s worst-performing currency this year. The Turkish lira has declined more than 16 percent against the dollar in 2018, the most outside those three nations. Such losses will continue if there’s no intervention, Alnus said.
Based on the pace of the lira’s weakening in recent weeks, the currency could fall to 4.58 per dollar by the end of this week and 4.75 per greenback next week, the brokerage said. The lira dropped 1.4 percent to touch a record low of 4.5621 per dollar on Monday.
The market is testing whether the central bank’s verbal interventions are a bluff or not, Alnus said. Without policy action, the damage is likely to spiral, it said, citing the $222 billion of net debt held by Turkish non-financial companies in overseas currencies. Each 1 cent depreciation in the currency adds about 5 billion liras to the cost of Turkey’s foreign borrowings, it said.
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