Lira hits new record low, as investors flee Turkey

Turkey’s lira fell to a fresh record low of 9.85 on Monday after President Recep Tayyip Erdogan said he was pursuing the expulsion of ten foreign ambassadors after they called for the release of Turkish philanthropist Osman Kavala from prison.

The lira retreated as much as 2.5% in early Asian trading amid thin liquidity, touching a new low for a third day, giving traders another reason to sell the struggling currency.

Erdogan’s comments boosted fears of heightened tensions between the West and Turkey, hitting the already weak lira. It’s fallen 24% versus the dollar so far this year.

The lira, having already hit a record low the previous week after Turkey’s central bank cut its key interest rate despite growing inflation, is in for more pain if Erdogan continues on this path, analysts warned.

Investors have long been concerned about the central bank’s lack of independence from Erdogan, who has said that interest rates are “the devil” and holds the unconventional belief that cutting them will reduce inflation — the opposite of what most economists say is the case.

Erdogan declared during a rally on Saturday that he had demanded the status of “persona non grata” be applied to the ambassadors of the U.S. and nine other Western countries.

Observers note that the foreign ministry has not yet appeared to carry out Erdogan’s instructions, as “none of the diplomats has been formally notified,” Piccoli wrote. Turkish Foreign Minister Mevlut Cavusoglu, responsible for carrying out the order, has not yet commented on the matter.