Turkey's lira slides again, bond yields soar, as U.S., rate worries deepen

© Reuters. FILE PHOTO: A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul

By Ezgi Erkoyun and Ali Kucukgocmen

ISTANBUL (Reuters) – The lira weakened on Tuesday, closing in on a record low hit the previous day as investors’ concerns deepened about a rift between Turkey and United States and President Tayyip Erdogan’s influence over the central bank.

On Monday, the currency fell as much as 5.5 percent to 5.4250 against the dollar, an all-time low and its biggest intraday drop in nearly a decade, after Washington said it was reviewing access for Turkey’s exports to the U.S. market.

The depth of the sell-off reflects growing unease about the direction of monetary policy under Erdogan, a self-described “enemy of interest rates”, and the fallout from worsening ties with the United States, a NATO ally and major trading partner.

The lira’s chronic weakness – it is down some 27 percent so far this year – has driven inflation to nearly 16 percent and fuelled expectations that the central bank may need to step with an other emergency rate hike, as it did in May, to put a floor under the currency.

“The plunge in the currency over the past few weeks is now on a scale which has, in the past, prompted the central bank to hike interest rates aggressively,” William Jackson of Capital Economics said in a note to clients.

“The lira’s fall is being amplified by concerns that the central bank will not act to shore up the currency.”

The lira , was at 5.3120 to the dollar at 1029 GMT. Against the euro it was at 6.1503. It is down some 26 percent against the common currency this year.

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Turkey’s 10-year benchmark bond yields hit 20.09 percent, their highest on record.

A delegation of Turkish officials will head to Washington in two days to discuss the ongoing row between the NATO allies, broadcaster CNN Turk reported overnight, citing diplomatic sources.

Relations have been strained by differences over Syria, and the trial in Turkey of U.S. evangelical Christian pastor Andrew Brunson for allegedly supporting the group Ankara blames for an attempted coup in 2016. He denies the charge.

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