Turkish currency hits new low as crisis persists

The Turkish currency plunged to a new low against the dollar Thursday as the government grappled with its worst crisis for years, sparked by a corruption probe targeting top political and business figures. The lira hit 2.20 to the dollar, extending a slide that has seen it lose nine percent of its value since the scandal erupted in mid-December, and more than 20 percent since May last year. Although Prime Minister Recep Tayyip Erdogan has sought to curtail the probe, analysts are concerned the crisis could further damage Turkey's economy. Growth in gross domestic product is forecast to be around four percent this year, well down from a peak of close to nine percent in 2010 but a above an estimated 3.6 percent in 2013. In late afternoon trading, the lira was changing hands at 2.2008 to the dollar after earlier hitting a record low of 2.21 while against the euro it was at 3.0058. The currency had already broken through the key psychological barrier of 3.0 to the euro on Tuesday. The Istanbul stock exchange was also down 1.01 percent at 67,473.19 points. "The Turkish lira is headline driven at the moment, and right now it is suffering from a lack of good news," said Kathleen Brooks, research director at online trading site Forex.com. "This could be the case until elections later this year, and we continue to think the outlook for the Turkish lira remains grim." Britain's Barclay's Bank gave a pessimistic 12-month projection for the lira of 2.35 to the dollar. "We expect persistent pressure on TRY (lira)," it said in a report. It highlighted in particular Turkey's large external funding needs and limited support from the Turkish central bank, which has been reluctant to raise base interest rates to prop up the currency. The central bank, which sold $17.6 billion of foreign currency reserves last year to support the lira, is meeting next Tuesday to discuss its next monetary policy moves. The government has blamed what it describes as a "coup plot" by supporters of an exiled but influential Islamic preacher for the turmoil. "Whenever Turkey improves its investment climate, exports goods and services to the world ... we see various attacks and coup plots against democracy and national will," Interior Minister Efkan Ala said at a conference of Turkish ambassadors in Ankara. 'Turkey’s footing is firm' Turkish officials have insisted that their 2014 growth forecast of around four percent remains intact despite the political crisis and the global effects of a US move to begin withdrawing massive monetary stimulus. "It is obvious that both the US Federal Reserve's monetary tightening policy ... and the political situation raise downwards risks on growth," Finance Minister Mehmet Simsek said Wednesday. But he said any slowdown would be temporary "because Turkey’s footing is firm". Turkey is particularly vulnerable to a cut in the US bond-buying programme as it depends on cheap capital inflows to finance its yawning current account deficit -- highlighted by analysts as a concern for the economy. Simsek said he is due in London and New York over the next week to meet investors and reassure them about the situation in Turkey. "The global investor exit from our market was very limited despite all this tumult," he added. In an address to Turkish ambassadors, Deputy Prime Minister Ali Babacan said the government's major goals under its 2013-2016 economic plan were to reduce the current account deficit, cut inflation, maintain a strong fiscal stance and to increase growth and employment. Babacan said that Turkey was targeting inflation of 5.3 percent this year, down sharply from 7.4 percent in 2013. But he conceded the projections could be derailed by further currency falls. Rating agencies Moody's and Fitch last week both said that the crisis had not affected their sovereign ratings for Turkey.