Turkish Lira Hits Record Lowest Value Against Dollar for Two Consecutive Days

Rapid Interest Rate Cuts Cited as the Cause

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] The value of the Turkish lira hit a record low for the second consecutive day.

On the 7th (local time), the Turkish lira traded at 7.3220 lira per US dollar during the day. This represents a roughly 1% decline from the previous day's record low of 7.2690 lira per dollar, which was the lowest in three months.

In response to the lira's depreciation, the Central Bank of Turkey announced it would "reduce the liquidity limits provided to major foreign exchange dealers as part of open market operations to half of the current level."

This is interpreted as an effort to curb exchange rate fluctuations to prevent a sharp drop in the lira's value.

The central bank stated in a press release, "We will use all available means to reduce excessive market volatility in accordance with our price and financial stability objectives."

The decline in the lira's value is attributed to a rapid interest rate cut.

During the 2018 economic crisis, the Turkish government raised the benchmark interest rate to 24% to defend the lira exchange rate.

However, after Murat Uysal took office as the central bank governor in July last year, the benchmark interest rate was sharply cut from 24% to 8.25% within a year.

Typically, raising the benchmark interest rate increases the value of the domestic currency against foreign currencies, while lowering the rate decreases the domestic currency's value.

Experts have warned that the central bank's rapid interest rate cuts could lead to a sharp depreciation of the lira.

Additionally, there are analyses suggesting that Turkey's foreign currency reserves are at a concerning level due to the central bank's large-scale dollar sales to defend the exchange rate.

According to the Central Bank of Turkey, as of the end of June, Turkey's foreign currency reserves stood at $86.3 billion (approximately 102 trillion won), a decrease of about $6 billion compared to the end of March.

However, Bloomberg reported that as of the 17th of last month, Turkey's foreign currency reserves excluding gold were $49.2 billion (approximately 58 trillion won).

Goldman Sachs estimated that Turkish authorities spent $65 billion to manage the exchange rate through the end of June this year.

This content was produced with the assistance of AI translation services.