SULAIMANI (ESTA) —Turkey’s lira slid 15% to near its all-time low on Monday after President Tayyip Erdogan’s shock weekend decision to oust a hawkish central bank governor sparked fears of a reversal of recent rate hikes and undermined the bank’s credibility.
Worries that events in Turkey will cause disruptions in other financial markets also supported the dollar because of its status as a safe-harbor currency, according to Reuters.
“Other emerging market countries are not in the same position as Turkey, but there still could be some contagion,” Reuters quoted Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, as saying.
“There are concerns that people will start taking profits in other markets. This looks like a time to re-think your investment strategy, because the rotation into higher-yielding emerging market currencies will be put on hold.”
The Turkish lira stood at 7.9978 per dollar on Monday.
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. At 0505 GMT it stood at 8.065, 10% weaker from Friday.
Analysts said they are braced for bigger moves as more investors enter markets later in the day.
Erdogan fired the central bank governor only two days after a sharp rate rise that was meant to head off inflation of nearly 16% and support the lira.
The new central bank governor will most likely lead to a reversal of the hawkish and orthodox steps taken to battle inflation, which could lead to prolonged market volatility, analysts said.
“After regaining investor confidence with a series of aggressive rate hikes, Turkey has snatched defeat from the jaws of victory,” analysts at Brown, Brothers and Harriman wrote in memo.
