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Turkish lira slumps to new low as central bank under pressure

Istanbul (AFP) - Turkish lira hit a new record low for a third consecutive day on Thursday as the government stepped up pressure on the central bank to lower interest rates, damaging investor confidence.

The lira peaked at 2.6095 against the dollar at Thursday's close, breaking through the psychological barrier of 2.6.

The currency has lost three percent in value over the past week alone as the government has renewed pressure on the nominally-independent central bank to cut interest rates to support growth.

Since mid-January the lira has dropped more than 11 percent in value against the greenback.

The main Istanbul stock index ended the day down 1.57 percent at 80,779.58, falling to its lowest level in 11 weeks.

"The intensifying political pressures on the central bank is seemingly the main reason behind the poor performance of the lira," economist Gokce Celik of Istanbul-based Finansbank said in a note to clients.

With parliamentary elections looming in June, President Recep Tayyip Erdogan has lashed out at the central bank over interest rates, which were jacked up to keep a lid on inflation.

On Monday Erdogan said defending high interest rates is equal to "treason against this nation" and called on the central bank governor Erdem Basci and Deputy Prime Minister Ali Babacan to "shape up".

Economy Minister Nihat Zeybekci on Wednesday renewed calls for sharper rate cuts, accusing the bank of displaying "cowardly behaviour."

Rumours in the past days that Basci and Babacan -- the figures most trusted by the markets in the Turkish elite -- were set to resign also weigh on sentiment.

The fact that the dollar has been climbing on global markets as the US Federal Reserve nears raising its record low interest rates has also worked against the lira.

The Turkish central bank last month trimmed its rates on a "measured scale" while keeping a watchful eye on inflation, which is running at 7.55 percent, well above its target of 5 percent.

Prime Minister Ahmet Davutoglu, flanked by Babacan and Finance Minister Mehmet Simsek, has been meeting foreign financiers in New York since Wednesday, but it did little to allay concerns over the country's economic management.