Source: Financial Times
The Turkish currency continued to plunge after President Recep Tayyip Erdogan ignored warnings from businesses about the potential harm of recent interest rate cuts. TRY USD down -5.79%
- The currency, which has reduced 50% of its value against the dollar since the Turkish President ordered the central bank to start reducing its borrowing costs in September, dropped to a record low of 17.5 against the dollar after markets opened on Monday.
- The lira’s over 6% fall was much worse than the 0.2% slid for MSCI’s broad emerging market currencies index.
- Meanwhile, the cost of protecting against a potential default on Turkish debt has risen sharply due to the growing concern about the impact of the crashing Lira on the wider financial system.
- The spread on the five-year credit default swap has increased to 575 basis points, from nearly 300 bp at the beginning of the year.
- Erdogan has pushed the Turkish economy into a currency crisis by pushing for four interest rate cuts in the last four months despite surging inflation.