Turkish Lira continues plunge as state banks halt dollar sales

Turkish Lira continues plunge as state banks halt dollar sales
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Turkish lira dropped 7.1%, hitting 23.22 per dollar, signaling a potential shift to a hands-off approach.

Turkish lira experienced its most significant drop in over a year on Wednesday, as state lenders reportedly ceased their dollar sales to defend the currency, leading the traders to believe that Turkey's new economic administration is relinquishing costly interventions in the market, according to Bloomberg.

At 11.00 a.m. in Istanbul, the currency plummeted by as much as 7.1%, reaching a rate of 23.22 lira per dollar. This marks the lira's 12th consecutive day of weakening against the greenback, exacerbating concerns about its stability.

The recent appointment of Mehmet Simsek, a former Merrill Lynch strategist, as Turkey's treasury and finance minister in President Recep Tayyip Erdogan's new administration, has ignited speculation of a return to a more orthodox economic policy that includes reduced state intervention in the market. Since the second round of Turkey's elections on May 28, the lira has already depreciated by more than 12% against the dollar.

Despite the dramatic fall, Turkey's state banks have refrained from commenting on their actions in the foreign-exchange market. However, a former Turkish central bank governor stated in 2020 that government-owned lenders comply with regulatory limits and could continue to be active in the currency market.

Adding to the currency's woes, Goldman Sachs Group Inc. analysts recently revised their forecast for the dollar-lira pair, predicting increased pressure on the Turkish currency. The bank now anticipates the lira to depreciate to 28 per dollar within the next 12 months, a significant change from their previous projection of 22, according to a report dated June 3.