Turkey is entering the throes of a full-blown currency crisis.
The lira suffered its biggest loss in almost a decade Wednesday on a closing basis as trader confidence in the central bank's willingness to halt its slide all but evaporated. It sank as much as 5.2 percent, nearing an unprecedented low of 5 per dollar, and was 3.8 percent lower as of 3:41 p.m. in Istanbul.
Policy makers “must hike now,” said Cristian Maggio, the head of emerging-market strategy at TD Securities in London. “There's no limit to how far this could go because this is becoming a currency crisis.” Eventually, Turks will start selling too, and then there will be “total loss of confidence,” he said.
The lira has fallen every day but three during May, putting it on course for its worst month in a decade, as the combination of the strengthening dollar, a widening current-account deficit and a central bank reluctant to act rattles investors. The latest turmoil was triggered when President Recep Tayyip Erdogan, who has long opposed interest-rate increases, said this month he intends to take more responsibility for monetary policy if he wins the June 24 election.
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