(Bloomberg) -- The lira extended this week's slump as the Turkish central bank's deputy governor was reportedly set to resign.
The dollar gained as much as 5.8 percent to 6.8427 against the lira, which was the worst performer among emerging markets, in thin trade during a public holiday in Turkey. The drop accelerated after central bank Deputy Governor Erkan Kilimci was said to be set to resign to join Development Bank of Turkey, according to a person familiar with the matter.
The currency is headed for a fourth day of losses despite a series of steps by the central bank in recent weeks to try to stem a more than 40-percent slide in the currency this year. Policy makers reintroduced borrowing limits for overnight transactions at the interbank money market on Wednesday, effectively tightening liquidity, though investors are looking for rate hikes to restore market confidence.
“The lira is trading weaker on news of the deputy governor,” said Neil Jones, Mizuho Bank's head of hedge fund sales. “The lira was trading weaker anyway, it looks as though the resignation is adding to the momentum.”
Investors are concerned about double-digit inflation and a deepening current-account deficit, as well U.S. sanctions announced earlier in August over the detention of an American pastor. The central bank has come under pressure from President Recep Tayyip Erdogan to avoid rate increases. The resignation news signals the country is still “fully in crisis”, said ABN Amro Bank NV currency strategist Georgette Boele.
“The market still expects the central bank to raise interest rates significantly on September 13, instead of backdoor tightening,” said Piotr Matys, an emerging-market currency strategist at Rabobank. “This would have to be accompanied by fiscal tightening and economic reforms, and perhaps more importantly Ankara should make an effort to defuse diplomatic tension with Washington.”
--With assistance from Anooja Debnath.
To contact the reporter on this story: Cagan Koc in Istanbul at ckoc2@bloomberg.net
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee
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