Lira to embrace higher volatility ahead

Turkish lira hit another all-time low against dollar today in intraday trading. Lira is currently trading at 2.672 against dollar, after making high around 2.687.

• Lira is down 14.6% against dollar so far this year and down close to 26% in last one year, as economic and political risks remain high in Turkey.

Economy at a glance -

• Turkey's GDP growth has slowed to 2.6% y/y from 4.9% in 2014. This year growth is expected to slow down further.
• Turkey's unemployment rate now stands close to 10.9%, up from 8.8% in mid last year.
• Youth unemployment rate stands close to 19%.
• Inflation rate is rising once again, now at 7.6%, in spite of lower oil prices.
• Current account to GDP has improved from -9.7% in 2012 to -5.7% as of now.
• Manufacturing PMI hit lowest level on record at 48.

Investors should prepare for higher volatility as the country's central bank prepares to join in the fight by selling dollars to pop the currency.

Turkey has around $140 billion worth of foreign exchange reserve.

Lower interest rates as prompt country's private sector to borrow billion in US dollar. That now stands very costly given the interest rates.

Rout in Lira might not be over, however for now central bank will try to defend psychological levels such as 2.70, 3 against dollar with utmost determination.