Turkish lira falls to new low against dollar

Turkey’s lira dropped to a new low against the U.S. dollar on Friday amid concern that the government is prioritizing economic growth over inflation, leading to an overheating of the economy.

The lira dropped to as low as 4.0618 to the dollar in Istanbul. It was 0.1 percent lower at 4.053 at 11:51 a.m. It declined to 4.96 against the euro.

The lira has slid more than six percent this year, leading a decline among major emerging market currencies, after the government failed to tackle double-digit inflation with increases in interest rates and the current account deficit widened, fueled by imports.

On Friday, leading columnist Ugur Gurses wrote in the Hurriyet newspaper that central bank interest rates of 12.75 percent are probably about 250-300 basis points lower than they should be, pointing to yields on 10-year bonds and one-year debt.

President Recep Tayyip Erdogan is focused on stimulating the economy because he is facing re-election next year. Parliamentary and local elections are also due to be held.

The Turkish lira used to have a history of devaluation similar to Argentina’s peso before Erdogan’s Justice and Development Party (AKP) won power in 2002 and implemented an International Monetary Fund program. The central bank has since abandoned an inflation-targeting regime and an implicit targeting of exchange rate levels.

The lira traded at 1.15 per dollar just prior to the 2008 financial crisis.