by Andrew Rosenbaum

ANKARA

As the Turkish lira has dropped to a 2.4432 against the dollar low, Turkey’s central bank is faced with a dilemma: delaying promised cuts which may not stop the fall of the lira, or proceed with them, which will most certainly cause a further loss in value.

The central bank had called an emergency meeting its monetary policy committee for Tuesday but it may be delayed until Feb. 24, when the committee was originally scheduled to meet, as the lira continues to slide.

“Recent movements in financial markets are not consistent with the degree of caution of the rate cut cycle envisaged by the Central Bank of the Republic of Turkey,” said Turkish Central Bank governor Erdem Basci in a statement on Friday, suggesting that projected interest rate cuts may be delayed.

The governor had previously hinted that another rate cut would be voted at the meeting Tuesday, following the 50-basis-point reduction of Jan. 20.   

These announcements led to a lira sell-off -- the currency has declined 4.4 percent against the dollar since the beginning of the year and lost nearly 4 percent in the past week.

A weak lira poses serious challenges to Turkish businesses, as more than 80 percent of corporate debt is denominated in foreign currencies, according to central bank statistics. Servicing that debt becomes much more expensive when the lira is low in value.

But a weak lira also stimulates growth in exports and manufacturing, analysts say.

Basci said on Friday that Turkey’s inflation rate was falling, and was perhaps on its way to hit a historic low of 5 percent. A decline in the inflation rate from 8.17 percent in December to a level forecast at about 7.20 percent is expected to be announced on Tuesday.

The government has regularly insisted that a large rate cut was long overdue. 

Economy Minister Nihat Zeybekci said on Friday that lower interest rates were needed to stimulate growth.

“At the present juncture, interest-rate reductions are already late,” Zeybekci said, “We find it meaningless for Turkey to tolerate high interest rates out of fear."