The Turkish lira weakened 1% against the dollar on Monday, after earlier spiking to a record low in light overnight trade, amid concern about the Azeri-Armenian conflict and despite central bank efforts to boost the currency with a rate hike.
A fire was exchanged again on Monday after at least 16 military members and several civilians were killed Sunday in the heaviest clashes between Armenia and Azerbaijan since 2016. Turkey said it supports Azerbaijan.
“Fears are that Turkey gets dragged into another regional conflict,” said Timothy Ash at BlueBay Asset Management.
Also hit by dollar strength, the lira <TRYTOM=D3> stood at 7.7470 against the greenback at 0742 GMT, having touched a record low of 7.80 overnight – marking a decline of 24% from the end of last year. It closed at 7.6725 on Friday.
The currency has been among the worst performers this year on worries about Turkey’s depleted forex reserves and sharply negative real interest rates. It has lost half its value in less than three years.
Turkey’s central bank surprised analysts Thursday when it hiked its key rate by 200 basis points to 10.25%, tightening policy for the first time in two years in order to support the currency and rein in inflation.
Until last Thursday’s rate hike, the central bank had relied on back-door methods to tighten the money supply, using liquidity measures and directing lenders to borrow at a higher rate.
On Monday, Turkey’s BDDK banking watchdog said it was lowering deposit banks’ required asset ratio to 90% from 95%, further easing a rule that effectively forced private banks to lend more and buy more government debt.
The BDDK on Friday raised the limits for banks’ foreign currency transactions with foreign entities, allowing increased access to the market.