ISTANBUL, Nov 11 (Reuters) - The Turkish lira continued its dive into uncharted territory on Thursday, touching a new low of 9.97 to the dollar after a jump in U.S. inflation exacerbated worries for a currency already hobbled by the central bank’s unorthodox rate cuts.
The lira was down 1.2% and near the psychological threshold of 10 versus the U.S. currency. It has shed two-thirds of its value in five years, eating into the incomes of Turks along with double-digit inflation.
At 0850 GMT, one dollar was worth 9.965 Turkish lira. The Turkish currency - the worst performer in emerging markets again this year - was also nearing a record intraday low versus the euro at 11.41.
The higher-than-expected U.S. inflation data boosted the dollar as investors weighed a possible earlier policy tightening by the Federal Reserve. Rising U.S. rates tend to pull funds from emerging economies with high foreign debt, like that of Turkey.
The lira has lost 25% of its value this year mainly due to concerns over monetary policy credibility as President Tayyip Erdogan pushed for lower interest rates to boost growth despite inflation running near 20%.
Since September, the central bank has cut its policy rate by a total of 300 basis points to 16%, arguing that the inflationary pressures are temporary. Analysts expect more easing despite the already deeply negative real rate.
“Turkey is increasingly less attractive” for foreign investors, said Cristian Maggio, analyst at TD Securities.
“If there are further rate cuts, real yields could go to negative 500 or 600 basis points. And historically, any level that is so misaligned with the rest of the market doesn’t bring good things to Turkey,” he said.
Deutsche Bank said the central bank’s emphasis on core inflation and the current account suggests it will cut rates by 100 basis points in each of November and December, despite recent lira depreciation and the rally in commodity prices.
“We expect headline inflation to end the year at 19.5%... and it will stay above 20% in 1H22,” Deutsche Bank said.
Turkey’s current account recorded a surplus of $1.652 billion in September, its second straight month in the black, with a boost in exports and some recovery in tourism revenues.
In a shift in guidance, the central bank said last month the current account deficit was the country’s main problem, and narrowing the shortfall was key to tackling price stability and supporting the lira.
Reporting by Ezgi Erkoyun and Daren Butler in Istanbul, and Karin Strohecker in London; Editing by Dominic Evans and Jonathan Spicer