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Turkish lira hits record low amid political tension

ANKARA: The Turkish lira plunged to a new low against the dollar on Monday, pressured by a high-level corruption scandal rattling the government.

The lira fell to 2.1947 to the dollar, after dropping to 2.18 on Thursday and 2.17 on Friday.

The latest pressure against the Turkish currency arises from political tensions over a corruption and bribery investigation which has shaken Prime Minister Recep Tayyip Erdogan's pro-business government.

"We are faced with a significant challenge ... Whether or not the legal developments have (a) negative impact on foreign direct investment, we will see, but we are committed to improving the investment climate," Finance Minister Mehmet Simsek told The Financial Times on Sunday.

Simsek said that the fall of the lira would "obviously have some negative implications" for the Turkish economy.

"The bottom line for the first half of 2014 is slower growth, more modest growth, on the back of (US Federal Reserve) tapering and domestic political and economic conditions," he said.

Last week, Deputy Prime Minister Ali Babacan sought to play down the impact of the crisis on the once fast-growing emerging economy as only "temporary", although analysts warned that investors had taken fright.

He also said the government would not revise its projection of 4.0-percent growth of the economy this year -- down from a high point of close to nine percent in 2010.

Turkey's central bank, statutorily independent, is trying to prop up the lira by selling dollars from its reserves.

Last year the lira and the economy were undermined by signals of a tightening of US monetary policy which caused some investment funds to flow out of emerging economies, by demonstrations and unrest in the middle of the year, and by investor concerns over a current account deficit and high level of consumer credit.

The central bank raised effective interest rates sharply while holding down the official rate, and began to sell foreign reserves to shore up the currency.

 
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