Turkish lira slides as Isbank fallout dilutes support from rate hike

By BLOOMBERG

ISTANBUL • The Turkish lira led declines across emerging-market currencies for a second day as concern over President Recep Tayyip Erdogan’s expanded grip over the economy diluted the impact of last week’s larger than expected interest-rate increase.

Turkey’s lira weakened more than 3% yesterday, compounded by low volumes, according to an Istanbul- based currency trader who asked not to be named as the person is not authorised to speak to the media. Erdogan said the leading Opposition party’s stake in Turkiye Is Bankasi AS (Isbank) — the nation’s largest listed lender by assets — should be transferred to the Treasury, spooking investors who saw the move as another power grab.

“It’s the only bank he can’t control because of their ties to the CHP,” said Yuval Polushko, a currency trader a Spectra FX Solutions in London, referring to the Republican People’s Party, which holds a 28.09% stake in Isbank.

While it’s “very tough to call the lira at the moment”, there is still some upside in dollar-lira “when you consider how, despite the rate hike”, the lira hasn’t managed to break through six per dollar, he said. The lira slid 1.5% to 6.2607 per dollar as of 12:55pm yesterday in Istanbul.

It touched 6.0168 on Sept 13, its strongest level since Aug 27, after the central bank raised its one-week repo rate by 625 basis points to 24%.

Attention turned to the government’s medium-term programme, due to be announced on Thursday, for further signs on the direction of economic policy. Investors are looking for authorities to commit to a tighter fiscal programme that will help narrow the economy’s twin deficits.

The lira’s decline yesterday pared a rally last week of almost 4%, fuelled by the central bank’s move, which was lauded for reaffirming its independence.