Turkey’s lira slid 1.3 percent to a new all-time low on Nov. 10, as higher-than-expected U.S. inflation data extended a losing streak for the currency that has been propelled by concerns over premature interest rate cuts.
The worst performer in emerging markets this year, the lira weakened to as much as 9.875 versus the dollar, surpassing the previous record of 9.85, touched two weeks ago. One dollar bought 9.825 lira at 5.25 pm local time.
The U.S. inflation data boosted the dollar as investors weighed a possible earlier policy tightening by the Federal Reserve. Rising U.S. rates tend to pull funds from emerging economies with high foreign debt, like that of Turkey.
Foreign investors have reduced Turkish exposure over the last five years as inflation remained mostly in double digits and concerns grew over President Recep Tayyip Erdoğan’s interference at the Central Bank, including a rapid leadership turnover.
The lira has lost nearly 25 percent this year, including 15 percent since the beginning of September, when the bank - under pressure from Erdoğan - began setting the stage for policy easing despite inflation running near 20 percent.
It has since cut its policy rate by a total of 300 basis points to 16 percent, leaving Turkey with deeply negative real yields - a red flag for investors.
“Turkey is not investable,” said Daniel Grana, portfolio manager for EM equities at London-based Janus Henderson.
“I don’t know about the likelihood of change in the upcoming election, but we would need to see a change in the political thoughts around economic management before we’d be willing to reconsider,” he said of polls set for no later than mid-2023.
“There are fantastic companies in Turkey that are very well run,” Grana added.
“But you have to consider the top down, which in this case is macro management, and the political process and the choices ... under President Erdoğan have undermined the institutional framework - and gives me no confidence as a foreign investor in Turkey.”
Turkish inflation has risen due to rising commodity prices including oil and gas, which boost import prices in the country that produces little energy. Currency depreciation adds to price pressures, keeping inflation well above a 5 percent target.
Separately, official data showed the unemployment rate dipped to 11.5 percent in September while a seasonally-adjusted measure of labor underutilization edged up.