Financial crisis weighs heavily on Turks

Fears that Turkey is on course for a full-scale financial crisis have intensified after the lira plunged to fresh lows against the US dollar.

The lira was at one stage trading at almost 15 to the dollar as currency dealers contemplated the prospect of the latest in a series of interest rates cuts

Official interest rates have been cut from 19% to 15% since September and markets are bracing themselves for another 1-point cut in interest rates on Thursday.

At one stage, the lira had fallen 7% against the dollar before mounting a partial recovery to about 14.25 to the dollar on the currency-market intervention by the central bank. Analysts warned, however, that buying lira in the financial markets was likely to provide only a temporary respite.

Depreciation fuels inflation in the big emerging market economy that depends heavily on imports, and which is rattled after 400 basis points of interest-rate cuts since September.

The interventions are an additional risk for a central bank that is not only easing policy in the face of rising inflation, but that also has had depleted foreign reserves.

Some analysts said a crashing lira and the threat of a credit downgrade from the rating agency S&P might force the government to adopt a more cautious approach.

The lira crash has sharply eroded Turks' earnings, fueling poverty and leading to lines of people waiting to buy cheap bread as the price of goods surges. Lawmakers have brawled amid rising tensions in parliament as the opposition slammed government handling of the economy.