The Turkish lira continued to slide on Thursday to a 35-day low of 3.78601 against the greenback.
While Turkey's currency has been declining since February 24th, the lira’s fall was greatly exacerbated yesterday when the Turkish central bank hinted at additional monetary tightening to get inflation, as well exchange rates, under control.
On Wednesday, Turkish central bank Governor Murat Centinkayas gave a speech on the current macroeconomic conditions in the country, saying the Turkish economy is in a “moderate recovery,” while also stating that additional monetary tightening may be implemented:
“Heightened global uncertainty necessitates a cautious monetary policy stance. Accordingly, pricing behavior will be closely monitored and further monetary tightening will be implemented if necessary.“The governor went on to explain that the weakening lira may also result in “upside inflationary pressures in the short term,” however, monetary tightening would push inflation down by mid-2017.
A report published by the Turkish central bank on March 6, 2017, showed big jumps in consumer prices (+0.81%) and annual consumer inflation for February (+0.91% in Feb. to 10.13%), which the central bank said was a result of the declining lira.
The report said:
“Despite temporary tax reductions, the core goods inflation that soared amid the cumulative effects of the depreciation in the Turkish lira pushed both the annual inflation and the underlying trend of core indicators upward.”The lira strengthened towards the end of January, and throughout most of February, but since February 24th, Turkey’s national currency has dropped by more than 6% vs. the USD:
Lira banknote photo by ccarlstead