Turkish lira hovers near record low after latest rate cut
ISTANBUL, Nov 19 (Reuters) - Turkey's lira recouped from early losses on Friday, a day after the unit weakened about 6% when the central bank, under pressure from President Tayyip Erdogan, cut rates again and signalled more easing even as inflationary risks broadened.
The lira stood at 11.0850, as of 0542 GMT, but hovered near Thursday's close after the unit weakened to 11.2 overnight.
The currency hit a record low of 11.3 on Thursday, bringing its losses this week to nearly 11.5%, after the central bank cut its policy rate by 100 basis points to 15%.
The bank is seen as bowing to Erdogan's calls for stimulus as it forges on with what analysts see as a reckless easing cycle given the lira's meltdown and the rise in inflation.
Economists had predicted last week that the central bank would cut rates but some later said it could in fact hold off on easing further after the lira's sharp decline this week.
Some analysts say the bank will be forced to reverse course in coming months, with Goldman Sachs predicting it will tighten before mid-2022 after another 100-basis-point cut next month.
"The current policy mix is not sustainable (and) likely to quickly translate into inflation, rather than growth," analysts at the Wall Street bank said, adding the lira depreciation is likely to keep inflation above 20% through mid-2022.
"Under these circumstances, maintaining the policy rate at 14% will be even more challenging, in our view. Hence, we now expect the first rate hike in 2022Q2, rather than 2022Q3," it said after Thursday's cut.
The central bank bank said much of the price pressure was temporary and would persist through mid-2022, adding that it has some room for another possible rate cut next month.
The monetary easing leaves Turkey's real yields sharply negative and runs against the grain of a world in which central banks are raising rates to head off global price rises.
With the central bank's credibility battered over the years, the lira has lost as much as 39% this year after touching a high water mark of 6.9 in February.
The currency's selloff sharpened dramatically as the central bank turned dovish in September and later began slashing rates even as inflation climbed to near 20%.
The lira's depreciation, down some 66% in four years, and soaring living costs have eaten into Turks' earnings and hit Erdogan's opinion polls ahead of elections no later than mid-2023.
(Reporting by Ali Kucukgocmen; Editing by Sherry Jacob-Phillips)
