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Turkish lira nosedives to record low on rate cut

ANKARA, Turkey: Turkey’s lira has edged lower in early trading, adding to a recent slide and nearing an all-time low as a chill settled on relations with the United States and after the new central bank chief signalled that interest rate hikes would harm the economy.

The currency, among the worst performers in emerging markets this year, touched 8.425 versus the US dollar on Monday, nearing its low watermark of 2021 and close to its record 8.58 reached in early November.

“Market negativity is intense. The risk of an overshooting episode is unfortunately elevated,” said Robin Brooks, the chief economist at the Institute of International Finance.

The lira has shed 3.5% in the last three trading days as it became clear that US President Joe Biden would officially recognise the 1915 killings and deportation of Armenians in the Ottoman Empire as a genocide.

Turkey, a NATO ally of the US, sharply criticised the White House’s decision, which was announced on Saturday and said it undermined trust and friendship.

Turkish assets are particularly sensitive to strains in relations with Washington due to the fallout from US sanctions and economic threats, including a dispute in 2018 with then-President Donald Trump that sparked a lira crisis and recession.

President Recep Tayyip Erdogan’s spokesman and adviser, Ibrahim Kalin, told the Reuters news agency that Washington should act responsibly since it was in no one’s interest to “artificially undermine ongoing relationships for narrow political agendas.”

“Everything that we conduct with the United States will be under the spell of this very unfortunate statement,” he said in an interview on Sunday.

Adding to investors’ jitters, Turkish Central Bank Governor Sahap Kavcioglu, who was appointed a month ago, said late on Friday that while he would keep monetary policy tight, for now, any rate hike would send a bad message for the real economy.

“Who is happy with high-interest rates?” he said in his first televised interview as bank head.