Turkish Lira Hits Record Low over Moody's Funk

The Turkish lira, pounded by higher-than-expected inflation and security fears, hit record lows against the dollar on Monday after a gloomy Moody's statement.

The lira was down 2.46 percent to 3.73 to the dollar at 1400 GMT.

The drop followed a warning from ratings agency Moody's that the security situation is likely to weigh on the economy triggering a "general worsening of the investment climate" and putting its banks under pressure.

The agency, which downgraded the country's credit rating to junk in 2016, forecast that non-performing loans would rise above 4 percent by the end of the year.

Turkey's rating was also lowered to junk status by Standard & Poors last year, and it is facing a similar move by Fitch later this month.

The country's central bank attempted to slam the breaks on the lira plunge in November by raising interest rates for the first time since 2014.

Analysts said the bank may soon have to intervene again.

"While President Erdogan has said that there will be no one-off interest rate increases to try and reverse some of the losses in the lira, we think that this may still happen, particularly if we see further heavy losses of 1-2 percent per day in the coming days," said City Index research director Kathleen Brooks.

- 'Alarming' -

LCG senior market analyst Ipek Ozkardeskaya described the situation as "alarming."

"We do not rule out the possibility of a surprise intervention from the Central Bank of Turkey to ease the aggressive sell-off in the lira," she said.

The debate in parliament over a controversial new draft constitution aimed at expanding the powers of Recep Tayyip Erdogan's presidency was also "weighing on the lira," she said.

Critics say the move is part of a power grab by Erdogan, but he and his ruling Justice and Development Party (AKP) say introducing a presidential system would bring Turkey into line with other countries like France and the United States.

If passed by parliament, the draft constitution will be put to the public in a referendum expected late March or early April.

The referendum "could push the country toward a greater chaos and further weigh on its currency," Ozkardeskaya warned.

Official figures released Monday showed the country's industrial production stalled in November.

Capital Economics said the smaller-than-expected rise suggested "that while the economy probably returned to positive growth at the end of last year, the recovery will be sluggish."