ANKARA, May 23 (Xinhua) -- Turkey's currency lira has fallen to an all-time low against the U.S. dollar amid fears of economic instability as the country heads toward crucial elections next month.
The lira dropped to over 4.91 against U.S. dollar on Wednesday morning, down about 6 percent since Tuesday, before recovering some of its losses in the day, but still very prone to fluctuation.
The Turkish Central Bank is under pressure to hold an emergency meeting to sharply increase rates before a scheduled monetary policy meeting on June 7, but is seems to be unlikely as the government wants the rates to remain low.
Higher rates can support a currency and ease inflation, but could also hinder economic growth by making borrowing more expensive. The lira has lost more than 20 percent of its value against the dollar since the beginning of this year.
"The central bank has to act fast, there is a perception amongst investors and the public... that the government is leaving things to their own and is reluctant to intervene," said economic analyst Enver Erkan.
But he also argued that the currency depreciation will seriously affect businesses who deal with foreign exchange tools and will impact the economy as a whole.
"It will rule Turkey after the elections...This is not something that would be resolved in a matter of days," he pointed out.
Top economic officials met on Monday to discuss measures against the currency crisis. The meeting was attended by Deputy Prime Minister Mehmet Simsek and Central Bank Governor Murat Cetinkaya, fueling speculation that the emerging market's authorities may take drastic measures such as a serious hike in interest rates.
Official data also showed recently that the inflation climbed to almost 11 percent in April, stoked by the lira's fall against the U.S. dollar.
"There is an unhealthy situation in prices. I am confident that the right measure will be taken at right time," Turkish Economy Minister Nihat Zeybekci told reporters.
The continued depreciation of the Turkish currency would increase the chances of an emergency and substantial rate hike, said William Jackson, an emerging-market economist at Capital Economics, an economic research company.
"We expect the monetary policy committee to hold an interim meeting over the coming days to raise interest rate by at least 200 basis points. If policymakers refrain from tightening monetary policy, the risk of a disorderly adjustment and a sharp economic downturn (possibly recession) will mount," he said.
Turkey's central bank raised the key rate by 75 basis points last month, and has taken actions to boost lenders' access to dollar liquidity, but the measures have proved insufficient to support the currency.
A similar measure was taken Wednesday morning by the Istanbul Stock Exchange which decided to convert all foreign exchange asset needs to lira "in order to fight speculative actions aimed at creating negative image of Turkey before the elections."
Opinion polls showed that Turkish President Recep Tayyip Erdogan is the frontrunner of the presidential race due on June 24. During a recent visit to London, he said he planned to have a greater say in monetary policy if he wins the elections, which caused a further plunge of his country's currency amid fears that the independence of the central bank could be affected.
"Interest rates are the mother and father of all evil," said Erdogan, mentioning also a "foreign conspiracy" to harm Turkey's economy ahead of elections.
"Comments from the Turkish president raise the possibility that discretionary policymaking and policy predictability will come under pressure after June's elections," the credit rating agency Fitch said in a statement on Tuesday.
Following the statement from Fitch, the lira on Tuesday declined to a fresh historic low of 4.66 against the dollar before bouncing back to 4.63.
A botched coup in 2016 in Turkey was followed by a state of emergency which is still effective. The side effects of the war in neighboring Syria are also to blame for adversely impacting the Turkish economy.
Despite posting an impressive 7.4-percent growth in 2017, the highest in G20 member countries, Turkey's economy has started showing signs of overheating, according to specialists.
In addition to the plummeting currency as well as high inflation and unemployment, one of the weakest points of the Turkish economy is the current account deficit and external debt.
Ahead of the elections, Ankara has announced a controversial package of incentives and a tax amnesty, increasing fears about overspending.
