Turkish lira weakens ahead of test for central bank

Credit: REUTERS/Murad Sezer

Turkey's lira weakened against the dollar on Thursday, hours before a central bank policy decision that could test its willingness to maintain tight monetary policy and support the lira in the face of recession.

ISTANBUL, April 25 (Reuters) - Turkey's lira weakened against the dollar on Thursday, hours before a central bank policy decision that could test its willingness to maintain tight monetary policy and support the lira in the face of recession.

The lira TRYTOM=D3 stood at 5.8950 at 0720 GMT, after briefly weakening some 0.27 percent from Wednesday's close to 5.9010. It has fallen 5.7 percent so far this month, its worst performance since last year's currency crisis began in August.

The lira has come under renewed pressure in recent weeks for an array of reasons: uncertainty over challenges to local elections in Istanbul, concerns over strained ties between Ankara and Washington, and a drawdown in reserves that could leave the central bank little cushion in another crisis.

In its policy decision, the central bank needs to reiterate its commitment to tight policy in its official statement, said Piotr Matys, emerging markets forex strategist at Rabobank.

"The (central bank) may opt to strengthen the hawkish message to at least slow down the pace of gains in USD/TRY over the short-term horizon," he said.

The rate decision is due at 1100 GMT, with analysts excepting the central bank to hold its policy rate steady at 24 percent to put a floor under the lira, with inflation still standing around 20 percent in March.

The bank has repeated in the past it would maintain tight policy until the inflation outlook displays a "significant improvement."

The lira has fallen the last five trading days and is down 10 percent this year, after shedding 30 percent of its value last year.

(Reporting by Daren Butler; Writing by Ali Kucukgocmen; Editing by Jonathan Spicer)

((ali.kucukgocmen@thomsonreuters.com , @alikucukgocmen; +902123507067; Reuters Messaging: Reuters Messaging: ali.kucukgocmen.thomsonreuters.com@reuters.net))

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