Turkish lira hits six-year dollar low

he Turkish lira on Thursday hit a six-year low against the dollar as more analysts advised investors to cut exposure to Turkish assets or buy protection against sharper falls in the currency.

The lira fell to TL1.76 against the dollar, the lowest level since March 2003, before closing down 1.3 per cent at TL1.752. It has lost about 12 per cent of its value against the dollar since the start of the year.

Turkey’s financial system has proved more resilient than that of many neighbours in eastern Europe. But investors assumed interest rate cuts by the central bank would be supported by a new deal with the International Monetary Fund ensuring fiscal discipline.

Now worries are growing over the government’s reluctance to reach agreement with the IMF before local elections in March.

Barclays Capital advised its clients to buy protection against short-term weakness in the lira, saying markets had not fully priced in the risks of a recession as big as that of the 2001 crisis, significant fiscal deterioration and rejection of the IMF. “Turkey is less of a safe haven than some people believe,” said Christian Keller, economist at Barclays Capital, though he noted further lira weakness could “tilt” policymakers to reach an IMF deal.

Lars Rasmussen at Danske Bank also recommends reducing exposure to Turkish assets and Ulrich Leuchtmann, currency strategist at Commerzbank, said: “My recommendation would be to get rid of your Turkish lira.”

Local brokerage Expres Invest predicted Turkish gross domestic product would fall 4.5 per cent this year, and that a high budget deficit was now a bigger risk than Turkey’s current account deficit.

The lira is notoriously volatile, thanks to heavy short-term trading by domestic investors. It is vulnerable to sudden slides. One banker in Istanbul described it as “the most dangerous point in the Turkish economy”.

Chris Scicluna, economist at Daiwa Securities, was more upbeat, saying the lira could look “competitive” once the economy turned the corner. “I’m certainly not bullish, but there are reasons not to totally despair.”