Turkey's lira declined as much as 3.5 per cent on Thursday, the most in emerging markets.
Dubai - Iran central bank chief hints at possibility of further falls
The tumble of two Middle Eastern currencies - the Turkish lira and Iranian rial - which are among the world's worst performers this year, is predicted to continue as regulators fail to arrest their tailspin.
The lira, which has weakened by about 20 per cent this year, and lost around 70 per cent of its value over the past five years, continued its free-fall even on Thursday despite a central bank intervention by boosting interest rates.
"The reasons for lira's woes are deep-rooted and cannot be overcome with a rate cut or other drastic measures," a currency analyst pointed out, hinting that Turkey might be entering the grips of a full-blown currency crisis.
The plunge of the lira against the US dollar and other currencies is unstoppable given Turkey's double-digit inflation and large external financing needs as the country grapples with widening current-account deficit, consistent rise in oil prices, and a pullout by Japanese investors, analysts said.
Japanese margin traders, who until recently were doubling down on their Turkish bets, have been cutting their losses. Another reason why the lira is losing much more than any other currencies, except the Argentine peso, because of the lack of confidence in the central bank, they said.
The lira declined as much as 3.5 per cent on Thursday, the most in emerging markets, amid concern the unscheduled rate increase will provide only temporary support. It had reversed losses of as much as 5.2 per cent on Wednesday after the central bank raised its late liquidity window rate by 300 basis points.
The only hope for the beleaguered currency's rebound can be pinned on a dollar fall and the resurgence of emerging-market currencies, they said. The dollar rose to as high as 4.92 lira over the past few days, before settling back toward 4.69 on Thursday.
A rate hike might prove insufficient to stabilise the lira, as concerns about monetary policy-making in the post-election period will remain, according to Gokce Celik, chief economist at QNB Finansbank.
The Iranian rial, among other low-performing currencies along with Argentina's peso, subcontinent currencies, Angola's devalued the kwanza and Swedish krona (the worst-performing major currency this year), has been nose-diving due to several reasons. These include the threat of renewed US sanctions; fear of an impending economic crisis, weak economy; persistent high demand for dollars, concern on shrinkage in oil exports, and financial woes faced by local banks.
Under threatened US sanctions, Iran has lowered the official value of the rial to 42,060 to the dollar for the first time since it tried to stamp out a free currency market last month by unifying official and free-market rates at a single value of 42,000 to the dollar.
Central bank chief Valiollah Seif has hinted at the possibility of further falls, saying the the currency could move as much as six per cent during the fiscal year to March 20, 2019.
However, on the black market in early May, after Trump's decision to pull out of the Iran nuclear deal, the rial traded at record lows of about 75,000, according to foreign exchange website Bonbast.com. It has since recovered to around 64,000.