Turkish lira plunges: Report central bank deputy governor will resign

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Turkey’s
currency plunged on Thursday following a report suggesting
that the deputy governor of its central bank would resign. 

The lira
was down 5% to 6.7719 against the dollar at 8:45 a.m. ET. It has
lost more than one-third of its value this month and is one of
the worst-performing currencies of 2018.

Reuters reports central bank deputy governor and monetary
policy committee member Erkan Kilimci appears to have joined the
board of the Development Bank of Turkey, according to a document
released by the institution. 

The central bank has faced increasing political pressure
following the June reelection of President Recep Tayyip Erdogan,
who has pushed the institution to pursue unorthodox policies like
holding or cutting borrowing costs amid accelerating inflation.

On Wednesday, Moody’s rating agency
downgraded 20 Turkish financial institutions, citing
heightened risk to investor sentiment and funding. 

“In a downside scenario, where investor sentiment shifts, the
risk of a prolonged closure of the wholesale market would lead
most banks to materially deleverage, or to require external
funding support from the government, or the Central Bank,”
Moody’s said in a statement. 

The agency said around $77 billion of foreign currency wholesale
bonds and syndicated loans, or 41% of total market funding, needs
to be refinanced within the next year. Turkish banks hold around
$48 billion of liquid assets in foreign currency and have around
$57 billion in compulsory reserves with the central bank, which
would not be immediately available. 

An ongoing feud between Turkey and the US has deepened troubles
further. President Donald Trump
doubled existing tariff rates on Turkish aluminum to 20% and
on Turkish steel to 50% earlier this month after the two
countries failed to make progress on a conflict over the
imprisonment of Andrew Brunson, an evangelical pastor who has
been detained in Turkey for nearly two years.

In early August, the Trump administration also imposed sanctions
on Turkey’s minister of justice and minister of interior, whom
the White House said played “leading roles” in the arrest and
detention of 50-year-old Brunson. He was arrested in Izmir in
2016 for allegedly aiding a failed military coup, accusations the
pastor denies.

Lukman Otunuga, research analyst at FXTM, cautioned to keep an
eye on the lira because it represents “a major risk to deterring
traders away from investing in any high-yielding assets.”

MI