Lira extends slide as Turkey heads toward a financial crisis

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Singapore: Turkey’s lira extended its precipitous slide Monday, with the selloff spreading to other emerging-market currencies, after the nation’s president showed no signs of backing down in a standoff with the US. The lira weakened past 7.23 per dollar amid thin volume before paring losses after the nation’s Banking Regulation and Supervision Agency stepped in to limit swap transactions on the battered currency. Treasury and finance minister Berat Albayrak said the nation will announce steps to calm markets on Monday, Hurriyet newspaper reported.
The reported measures “have evidently had some impact in pulling the lira back higher,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank Ltd in Sydney. Still, “there’s nothing as yet to suggest that the government, or Turkish central bank, is poised to announce the fiscal or monetary policy measures capable of quickly restoring confidence in Turkey.”The Turkish currency has been a casualty of a deepening crisis spurred by the administration’s growth-at-all-costs agenda and a worsening spat with the US, which sanctioned Turkey over the detention of an American priest. The lira’s plunge to a new record low and fears of a contagion sparked tremors through global markets on Monday, dragging a gauge for emerging-market currencies to the lowest in more than a year.The dollar climbed as much as 13% to 7.2362 against the lira, with some banks said to avoid providing two-way prices amid unprecedented volatility. The South African rand fell to its weakest in more than two years, while the Mexican peso dropped 2% against the greenback.“The decline in the lira is multifaceted, caused not only by a weak external position in terms of current account deficit and inadequate currency reserves, but also the challenging political environment which exacerbates the vulnerabilities in the lira,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management.