Roundup: Turkish lira tumbles amid concerns over political pressure

Turkey's currency lira slid to a record low and bank stocks tumbled on Friday as the government renewed pressure on its central bank to lower interest rates.

Turkish lira fell to 2.645 against the U.S. dollar on Friday, breaking a new record low for a fourth consecutive day.

The currency has lost three percent over the past week and has since mid-January lost more than 11 percent of its value against the dollars.

Meanwhile, Turkey's main stock exchange index Borsa Istanbul dropped more than two percent, hitting its lowest level for 11 weeks.

The intensifying political pressure on the central bank is seemingly the main reason behind the poor performance of the lira, analysts said.

President Recep Tayyip Erdogan has repeatedly criticized the bank over its failure to cut its interest rates as sharply as he wants ahead of the June legislative elections.

On Monday, Erdogan accused the central bank governor Erdem Basci and Deputy Prime Minister Ali Babacan of "selling out the country" by keeping the high interest rates and urged them to "shape up."

"The central bank lost its weapon to intervene in the currency market through interest rates a long time ago due to the political pressure," economist Ibrahim Turkmen said.

He said experts have been warning Erdogan and the government for the risks of railing against the central bank.

The central bank cut the interest rates last week, which brought the overnight rates down to 10.75 percent, but far less than Erdogan's goal to stimulate flagging growth.

There are rumors in the past days that Basci and Babacan were set to resign and leave the government, possibly after the June elections, which weigh on the future of Turkish economic management team.

Turkey's annual inflation rate has been announced in March at 7.44 percent, significantly above the central bank's target, limiting its room to make the deep interest rate cuts.

The political row between President Recep Tayyip Erdogan and top economic policy makers on the interest rate policy has also weighed on investors' sentiment on the Turkish market.

The U.S. investor Citigroup sold its 9.9 percent stake in Turkish bank Akbank for 1.2 billion U.S. dollars this week.

Turkey's Prime Minister Ahmet Davutoglu and his economic team have been meeting fund managers and bankers in New York since Wednesday, in an attempt to ease concerns of top investors there who hold more than 20 percent of the main Istanbul stock index.

These efforts did not seem to work as investors continued to sell shares in Istanbul stock exchange.

Meanwhile, analysts said the financial risks in Turkey partly came after the government's controversial intervention into Bank Asya, a leading Turkish Islamic bank.

The government replaced the board of the bank in a move that was seen as a political motivation, triggering worries that the government may do this if any other bank is not aligning with the governing party's goals.

Arab bankers expressed concerns over the takeover of Bank Asya, saying it reflects badly on the Turkish finance sector.

The International credit and ratings agency Standard & Poor's also warned on Wednesday that regulatory actions against Bank Asya illustrated the "potential for political risk, or the perception of it, to directly or indirectly spill over into the financial system." Endit