Turkey's lira sank 1% on Thursday on rate cut fears, while a hawkish tone from a top US Federal Reserve official sent an index of emerging market shares lower for the first time in four sessions.
The lira was set to post its worst session in seven weeks after President Recep Tayyip Erdogan said interest rates will be lowered, even as inflation gets dangerously close to the benchmark interest rate of 19%, Reuters reported.
"The lira may suffer should rates policy increasingly loosen in real terms, as the central bank governor had previously promised to hold rates above expected and actual inflation," said Dennis Shen, director, sovereign and public Sector, Scope Ratings.
Erdogan's opposition to high rates has seen the lira lose 13% so far this year, the worst performing EM currency, with the ouster of a hawkish central bank chief earlier this year serving a severe blow.
The central bank meets next week, and while the market expects the bank to stay on hold, Erdogan's interference causes uncertainty.
Moves in other EM currencies were limited as the dollar firmed after Fed Vice Chair Richard Clarida said conditions for an interest rate hike could be met in late 2022, prompting markets to bring forward the likely timing of a policy tightening.
