Turkish Lira Slumps to New Low as Government Steps up Pressure on Central Bank

Turkish lira struck to a new record low for a third consecutive day on Thursday as the government stepped up pressure on the central bank to lower interest rates, damaging investor confidence. 

The lira briefly broke through the psychological barrier of 2.6 to the dollar, before recovering back to 2.5943 in afternoon trade. 

The currency was down more than one percent on the day and has lost 3 percent over the past week as the government has renewed pressure on the nominally-independent central bank to cut interest rates to support growth. 

The lira has now lost more than 11 percent of its value against the greenback since mid-January. 

The main Istanbul stock index was down 2.26 percent at 80,259.94, falling to its lowest level in 11 weeks.

"The intensifying political pressures on the central bank is seemingly the main reason behind the poor performance of the lira," economist Gokce Celik of Istanbul-based Finansbank said in a note to clients. 

Lowering interest rates would encourage spending and investment, thus boosting growth, which Finsbank now expects to slow to 2.6 percent this year from 4 percent last year.

With parliamentary elections looming in June, President Recep Tayyip Erdogan has lashed into the central bank over interest rates, which were jacked up to keep a lid on inflation.

On Monday Erdogan said defending the high interest rates is equal to "treason against this nation" and called on the central bank governor Erdem Basci and Deputy Prime Minister Ali Babacan to "shape up".

Economy Minister Nihat Zeybekci on Wednesday renewed calls for sharper rate cuts, accusing the bank of displaying "cowardly behaviour." 

Rumours in the past days that Basci and Babacan -- the figures most trusted by the markets in the Turkish elite -- were set to resign also weigh on sentiment. 

The fact that the dollar has been climbing on global markets as the U.S. Federal Reserve nears raising its record low interest rates has also worked against the lira.

The Turkish cental bank last month trimmed its rates on a "measured scale" while keeping a watchful eye on inflation, which is running at 7.55 percent, well above its target of 5 percent.