Published: Mon, July 08, 2019
Markets | By Otis Pena

Lira drops as Erdogan wields the axe

Lira drops as Erdogan wields the axe

Last summer saw a major drop in the Lira, as investors became skittish after a stubborn reluctance to raise rates to curb runaway inflation alongside a diplomatic spat with the U.S. caused a depreciation of more than a third, and while the capital controls in place should contain the downside for now, there could well be another run on the currency in the coming months - particularly if Erdogan becomes more forceful in his desire for lower rates.

No official reason was given for the sacking, but government sources cited Erdogan's frustration that the bank has kept its benchmark interest rate at 24 per cent since last September to support the ailing lira currency.

"Monetary policy-setting might be even more influenced by political pressure, leading to aggressive interest rate cuts that could undermine financial market stability and demand for local assets", she added in a research note. MSCI's broadest index of Asia-Pacific shares outside Japan lost 1.4%.

Several economists were already expecting a rate cut at a July 25 monetary board meeting as inflation fell to 15.7% in June, its lowest level in one year. China's Shanghai composite dropped 2.58% to 2,933.36 while the Shenzhen composite declined 2.898% to finish its trading day at 1,554.80.

Those expectations were tempered by a U.S. labor report that showed non-farm payrolls jumped 224,000 in June, beating forecasts for 160,000, in a sign the world's largest economy still had fire.

Turkish President Recep Tayyip Erdogan said on Monday that preparations for the delivery of Russian-made S-400 air defence systems are continuing and their loading works are in progress.

The latest news on the China-US trade talks failed to make an impression on markets.

Child falls to death on Royal Caribbean ship docked in Puerto Rico
It is understood one of the grandfathers was holding the child when she slipped from his arms. The family had reached the end of their seven day cruise at the time of the incident.


The lira pared some of its losses to last hold near 5.7575.

"Whether the negotiators can find a solution to the hard structural issues that remain between the two sides is another matter, and Kudlow cautioned there was "no timeline" to reach an agreement", National Australia Bank strategist Rodrigo Catril said. It closed Friday in NY at 5.628 per dollar.

USA officials have encouraged Turkey to buy the American-made Patriot missile defense system instead, but Erdogan has refused to pull back from the S-400 deal.

The Australian dollar, which has been on an uptrend since June 18, slipped below 70 USA cents to last trade at US$0.6985.

As of 2:47 a.m. ET, U.S. West Texas Intermediate (WTI) climbed $0.06 to $57.57 per barrel while Brent crude futures were up $0.08 to $64.31.

Spot gold gained 0.3% to $1,403.21 an ounce.

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