The Turkish lira fell to a record low of more than 15 per dollar on Thursday, ahead of another predicted interest rate decrease by the central bank, which has been cutting rates in response to President Tayyip Erdogan's hazardous new economic policy.
The lira fell as much as 2.9 percent to 15.25 pence per dollar and was trading at 15.2 pence per dollar at 0701 GMT. The US dollar has more than quadrupled in value this year versus the lira, upsetting Turkey's significant emerging market economy.
According to a Reuters poll, despite inflation exceeding 21%, the central bank is projected to drop its introductory rate by 100 basis points to 14% later today.
"Erdogan is conducting an experiment. Interest rates will be lowered as low as possible "Guldem Atabay, an economist with Istanbul Analytics, stated.
Since September, the bank has slashed its introductory rate 400 basis points to 15% as part of Erdogan's goal to prioritize exports and lending, despite widespread criticism from economists and opposition MPs.
Additionally, the bank intervened four times in the forex market over the last two weeks, selling dollars to halt the sell-off. At 1100 GMT, it will announce its interest rate decision.
According to the central bank, which aims for 5% inflation, inflation pressure is transient and necessary for economic growth and current account balance.
However, economists expect that inflation will climb to near 30% next year due to surging import prices.
The central bank has indicated that it will drop rates again this month before taking a break in January. It announced last month that it would consider "completing the use of the limited room" available for easing in December.
Erdogan has restructured the central bank's leadership this year, mostly replacing orthodox policymakers with like-minded officials, analysts say, eroding the bank's credibility.
The euro was also dragged down by the US Federal Reserve's hawkish decision on Wednesday to halt its bond-buying stimulus in March and forecast three rate rises next year to combat rising inflation.
US tightening might exert additional pressure on developing market currencies such as the lira. Money markets expect the Fed to lift rates for the first time in May, followed by further hikes in September and December, although three-quarter-point rate hikes are not fully priced in until February 2023.
