Turkey's lira set a new record low against the U.S. dollar on Thursday as investors anxious about the government's economic policies and dollar reserves appeared to be running low.
At the currency's weakest, one dollar bought 7.3101 lira, putting it on track for its lowest-ever closing value.
The lira hit a historic low on Thursday and is down almost 20% versus the dollar so far this year, despite the greenback's own weak performance.
Nevertheless, money market traders have been adding to bets in recent days that Uysal, who halted an aggressive year-long easing cycle in June, has little choice but to tighten policy soon to avoid a second currency crisis in as many years.
"As we have seen several times in the past, the central bank is looking to change its funding composition and increase lira costs rather than hiking rates", an asset and liability management banker said.
But after two weeks of volatility, Goldman Sachs now expects 175 points of hikes by year end.
That sent the interest rate linked to borrowing Turkish lira in exchange for dollars in offshore markets as high as 1,000% Tuesday in annualized terms, according to analysts and investors, in yet another sign of how the currency's market has become dysfunctional.
John Vandesquille, Travel & Tourism Analyst at GlobalData, a leading data, and analytics company, said, "The continuous drop of the Turkish currency on exchange markets, stemming from years of debt accumulation and the unwillingness of President Erdogan to increase interest rates, could actually help tourism in the region despite the uncertain times brought by the COVID-19 pandemic, with GlobalData forecasting a decrease in global arrivals of only 31.6% in 2020 compared to 2019".
Turkey's central bank - which is nominally independent but often the target of government pressure - has lowered interest rates to 8.25 percent from 24 percent since July previous year, to the dismay of many foreign investors. The cost of insuring the nation's bonds against default climbed to the highest in three months, while the main stock gauge lost more than 4%, making it the worst performer among developing-nation peers.
President Recep Tayyip Erdogan has repeatedly called for lower interest rates to promote growth at the expense of reining in inflation. The current governor has said policy is in line with inflation forecasts.