May 08 2018

Eyes on Turkish central bank as dollar to stay strong

The U.S. dollar will remain strong for a few months because of the anticipation of further rate hikes by the Federal Reserve, BloombergHT reported citing currency strategist Piotr Matys of Rabobank.

The lira has become a victim of dollar strength and action by Turkey’s central bank will be important as the dollar continues to perform well, Matys told the television channel in an interview.

Turkey’s currency slipped to a record low of 4.3 against the dollar on Tuesday, spurred on by a general selloff in emerging markets and speculation that the Turkish central bank will not take the steps needed to rein in the losses and to control inflation.

Turkish President Recep Tayyip Erdogan, who has called snap elections for June 24, opposes higher interest rates. Cemil Ertem, his senior economic adviser, wrote in a column for the daily Milliyet newspaper on Tuesday that high interest rates are the enemy and Turkey will continue to let its currency float freely on international markets.

The central bank has less than $30 billion in net reserves when subtracting the foreign currency it holds on behalf of the nation’s banks, limiting its ability to intervene in the market to buy liras.