The Turkish lira, the currency of Turkey and Northern Cyprus, hit a record low Monday after Turkish President Tayyip Erdogan issued an order to kick out western ambassadors from the country. The currency dropped by 1.6% against the U.S. dollar in early Asian trading.
Last week, the currency dropped to new lows as the Turkish central bank (CBRT) lowered its policy rate by 200 basis points despite growing inflation. The sudden decision to cut interest rates was described by analysts and opposition lawmakers as "irresponsible."
The lira had fallen to an all-time low of 9.75, down from Friday's close of 9.5950. Erdogan's words on Saturday were blamed for the early weakness. Since the start of the year, the currency has weakened by about 24% against the U.S. dollar. Sources familiar with the matter said the CBRT plans to further cut the borrowing costs on loans this week by up to 200 basis points.
Analysts expect the Turkish lira to fall further as it contends with extreme selling pressures. Emerging market analysts at BlueBay Asset Management said the CBRT currently has no mandate to increase rates, which means that the only way for it to defend against the further fall of the currency is to spend its nearly depleted foreign exchange reserves.
On Saturday, Erdogan ordered the country's foreign ministry to immediately expel the foreign ambassadors that were in Turkey to negotiate the release of businessman and philanthropist Osman Kavala. He ordered the ministry to declare the ambassadors as "persona non grata" for demanding the release of Kavala from prison. The activist have been illegally detained for the last four years without being convicted.
By Sunday, sources familiar with the matter said the foreign ministry had not yet acted on Erdogan's order as the ambassadors still remained in the country. Political analysts said the order could further deepen the rift between the western countries and Erdogan's administration.
Opposition leaders slammed Erdogan's decision, claiming that he only issued the order to expel the ambassadors to distract everyone from the country's struggling economy.
"The reason for these moves is not to protect national interests but to create artificial reasons for the ruining of the economy," Kemal Kilicdaroglu, leader of the main opposition CHP, said.
