January 10, 2017

ISTANBUL (AP) — Turkey’s central bank has moved to support the currency after it hit another record low amid investor concerns that the country might concentrate political power under its president. The central bank effectively freed up $1.5 billion in foreign cash liquidity for the banks by allowing them to reduce the amount of foreign currency they have to hold in reserve.

Concerns over Turkey’s financial system have grown in recent weeks as investors worry about the country’s political future. The government has cracked down on dissenters since a coup attempt this summer and is debating whether to further concentrate power.

Parliament started to deliberate Monday on constitutional amendments that would concentrate power President in Recep Tayyip Erdogan’s hands. Critics say it would turn the country into a de facto “dictatorship.”

The currency, the lira, is down almost 7 percent on the day at 3.71 per dollar, having touched a record low of 3.78 earlier in the day. Because Turkey relies on a lot of foreign investment in its economy, the currency’s drop can make it harder to pay back foreign debt. The central bank could support the currency by raising interest rates, but that would also hurt the economy by making borrowing costs higher for businesses and consumers.

So Tuesday’s move is a way to ease pressure in the financial system and currency markets, though economists are skeptical they will be enough. “With policymakers clearly spooked by the decline in the lira and today’s moves likely to have only a short-term impact, outright hikes in official interest rates look increasingly likely,” said William Jackson, senior emerging markets economist at Capital Economics in London.

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