Turkish lira hits new record low as cenbank meeting looms

Credit: REUTERS/MURAD SEZER

The Turkish lira weakened to a fresh all-time low against the dollar on Friday as investor attention focused on prospects for further central bank tightening steps ahead of its policy-setting meeting next Thursday.

Adds analyst comments, background

ISTANBUL, Sept 18 (Reuters) - The Turkish lira weakened to a fresh all-time low against the dollar on Friday as investor attention focused on prospects for further central bank tightening steps ahead of its policy-setting meeting next Thursday.

The lira TRYTOM=D3 touched a low of 7.5700, weakening from a close on Thursday of 7.5595. It has weakened more than 21% against the U.S. currency so far this year.

The central bank has kept its benchmark rate TRINT=ECI steady since cutting it to 8.25% in May, instead using back-door measures to tighten credit and slow the lira's decline.

Four former Turkish Central Bank policymakers, including a governor, have told Reuters the bank should set aside such back-door policy tools and use next week's meeting to formally raise the benchmark policy rate.

The average funding rate CBTWACF= has risen some 25 basis points from the middle of last week to 10.41%. After a sharp tightening in August, the rate was steady in early September.

Deutsche Bank said in a note the central bank had restarted liquidity tightening on the back of higher-than-expected inflation and increased tension over maritime disputes in the eastern Mediterranean. It forecast an end-week level of 10.5%.

"Although still too low in our view, we are at least moving back into the right direction and this is the most that can be achieved with the current framework (without outright hikes)," Deutsche said.

(Additional reporting by Nevzat Devranoglu Writing by Daren Butler Editing by Dominic Evans)

((daren.butler@tr.com; +90-212-350 7053; Reuters Messaging: daren.butler.thomsonreuters.com@reuters.net))

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