Rupee Opens at Record Lows Against Dollar On Back of Turmoil in Turkish Lira

New Delhi: The Indian rupee on Monday touched an all-time low of 69.62 per dollar in early trade on concerns about Turkey contagion spilling over to other emerging market currencies.

The rupee reversed marginally from its record lows to trade at 69.53 to the dollar from 68.84 on Friday. The ten-year benchmark bond yield rose to 7.81% from its previous close of 7.75%, tracking the weakness in rupee.

Traders will watch out for India consumer inflation data due after market hours for further cues.

Over the last three months, the rupee has been under pressure, with currency forecasters estimating that the 70-level mark will be breached before the end of 2018.

While most Asian currencies are weakening, the rupee, among the three biggest losers, has lost over 5% of its value between February and June 2018, according to Bloomberg data.

For reasons both global and specific to India’s macroeconomic parameters, foreign institutional investors have pulled money debt and equity for the first time in a decade in the first six months of this calendar year.

Turmoil in Turkey

Turkey has drafted a economic action plan and will start implementing it on Monday morning to ease investor concerns, finance minister Berat Albayrak said on Sunday, after the lira plunged to a new record low in early Asia Pacific trade.

In an interview with Hurriyet newspaper published online, Albayrak described the lira's weakness as "an attack," echoing President Tayyip Erdogan – who is his father-in-law – and said the action plan was ready.

"From Monday morning onwards our institutions will take the necessary steps and will share the announcements with the market," Albayrak said, without giving details on what the steps would be.

Albayrak also said a plan has been prepared for banks and the real economy sector, including small to mid-sized businesses which are most affected by the foreign exchange fluctuations. "We will be taking the necessary steps with our banks and banking watchdog in a speedy manner," he said.

He has also dismissed any suggestions that Turkey might intervene in dollar-denominated bank accounts, saying any seizure or conversion of those deposits into lira was out of the question.

The lira plunged to a fresh record low of 7.24 against the dollar during in Asia Pacific trade, where markets were opening for Monday morning. It pared losses after Albayrak's comments and stood at 6.8603 at 2136 GMT Sunday.

The currency has lost more than 45 percent of its value this year, largely over worries about Erdogan's influence over the economy, his repeated calls for lower interest rates in the face of high inflation and worsening ties with the United States.

On Friday, the lira tumbled as much as 18 percent at one point, its biggest daily drop since 2001.

Earlier, Erdogan had stood by his opposition to high interest rates, saying they were an instrument of exploitation and that Turkey was not going to fall into this trap.

In the Hurriyet interview, Albayrak said budget policies were important to support and strengthen the central bank's monetary policies. "We will be entering a strong period in terms of fiscal policies," he said.

Turkey's banking watchdog BBDK in a statement said it was limiting banks' foreign exchange swap transactions.

Storm in a tea cup

Erdogan, who has called himself the "enemy of interest rates," wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing.

His comments on interest rates - and his recent appointment of his son-in-law as finance minister - have heightened perceptions that the central bank is not independent.

On Sunday, speaking to supporters in Trabzon on the Black Sea coast, Erdogan dismissed suggestions that Turkey was in a financial crisis like those seen in Asia two decades ago.

The lira's free-fall was the result of a plot and did not reflect Turkey's economic fundamentals, he said. "What is the reason for all this storm in a tea cup? There is no economic reason... This is called carrying out an operation against Turkey," he said.

The central bank raised interest rates to support the lira in an emergency move in May, but it did not tighten monetary policy at its last meeting.

Erdogan repeated his call for Turks to sell dollars and buy lira to shore up the currency, while telling business owners not to stock up on dollars.

"I am specifically addressing our manufacturers: Do not rush to the banks to buy dollars. Do not take a stance saying 'We are bankrupt, we are done, we should guarantee ourselves.' If you do that, that would be wrong. You should know that to keep this nation standing is ... also the manufacturers' duty."

Turkey's row with the United States has further weighed on the lira.

The two NATO allies have been at odds over a wide range of issues: diverging interests in Syria, Ankara's ambition to buy Russian defence systems and more recently the case of Andrew Brunson, an evangelical pastor on trial in Turkey.

(Reuters)

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