The lira is trading above 26 against the US dollar, and is now down 28% against the greenback so far this year.
The Turkish currency has weakened due to the latest decision by the country’s central bank to ease the regulatory requirements in the banking industry, which were aimed at supporting the national currency. Last week, the regulator raised rates by 650 basis points to 15%.
It also refused to inject more foreign-exchange reserves to buoy the domestic currency and manage the exchange rate. Last week, Bloomberg reported that Turkey has spent some $200 billion to support the lira in the last 18 months, depleting reserves as it kept interest rates artificially low.
The central bank’s net international reserves dropped to a 21-year low of $2.33 billion in the week to May 12, as forex demand surged ahead of elections.
The latest steps were meant to free up markets and to ensure stability, the bank stated over the weekend, while a senior official said it had adjusted its foreign exchange policy, Reuters reported.
“The central bank is not intervening in any way on the exchange rate level by selling foreign currency after its interest rate decision last week,” the official said. “The numbers are determined entirely by the free market. Hence, there is no use of foreign exchange reserves and a period of increasing reserves has started.”