ISTANBUL (Reuters) - Turkey’s lira plunged 15% to near its all-time low after markets opened following President Tayyip Erdogan’s shock weekend decision to oust a hawkish central bank governor and install a like-minded critic of high interest rates.
The currency tumbled to as weak as 8.4850 versus the dollar, from 7.2185 on Friday, back to levels touched in early November when it reached an intraday record of 8.58. It last changed hands at around 8.10.
“The lira is being smashed by investors fearing that the custodian of its value does not share their hopes for a stable currency underpinned by positive real interest rates,” said Westpac senior currency strategist Sean Callow, adding that the lira may not yet have found a bottom.
“The real test will be when the volume comes in in Europe,” he said.
One possible scenario would see the lira swing as much as 15% in both directions in Monday’s European session as “TRY sets off on a roller-coaster ride driven by capital flight, central bank interventions and bargain hunters,” SEB Research wrote in a client note.
The overhaul meant capital outflows appeared likely and a rapid adjustment in the current account may be necessary since markets would shy away from funding Turkey’s chronic deficits, it said.
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