The Turkish lira hit the all-time low and is currently trading above 26 against the US dollar having lost 28% in value against US currency so far this year.
The lira touched a record low of 26.10 against the dollar yesterday during low liquidity hours and remained mostly flat.
The Turkish currency has weakened due to the latest decision by the country’s central bank to ease the regulatory requirements in the banking industry, which were aimed at supporting the national currency. Last week, the regulator raised rates by 650 basis points to 15%.
The Central Bank of the Republic of Türkiye also refused to inject more foreign-exchange reserves to buoy the domestic currency, announcing that is has stopped using forex reserves to maintain the exchange rate of the national currency.
In the last 18 months Türkiye has spent around $200 billion to support the lira, depleting its forex reserves as it kept interest rates artificially low.
Türkiye’s central bank’s net international reserves dropped to a 21-year low of $2.33 billion in the week to May 12, as forex demand surged ahead of elections.
The latest steps were meant to free up markets and to ensure stability, the bank stated over the weekend, while a senior official said it had adjusted its foreign exchange policy.
“The central bank is not intervening in any way on the exchange rate level by selling foreign currency after its interest rate decision last week,” the official said.
“The numbers are determined entirely by the free market. Hence, there is no use of foreign exchange reserves, and a period of increasing reserves has started.”