Turkish lira weakens after Fed reaffirms tightening policy

ANKARA, Nov 9 (Reuters) - Turkey’s lira weakened around one percent against the dollar to its weakest level of the week on Friday after the U.S. Federal Reserve reaffirmed its stand on tightening monetary policy, causing markets to price in a U.S. December rate hike.

The lira has recovered strongly from a plunge to a record low of 7.24 to the dollar in August, triggering hefty interest rate hikes. However, it remains down nearly 30 percent against the U.S. currency this year.

Its steep decline knocked global financial markets and put Turkey’s economic woes in sharp focus. Investors have voiced concerns about the outlook for banks sector and the real economy.

On Friday, the lira stood at 5.5100 against the U.S. dollar at 1101 GMT, off an earlier low of 5.5422 but weaker than Thursday’s close of 5.4622.

The lira depreciation on Friday came as emerging market shares and currencies fell to their lowest in a week, tracking a global downturn in sentiment after the Fed reaffirmed its stance on tightening monetary policy.

Investor concerns about President Tayyip Erdogan’s influence over monetary policy and the central bank’s ability to rein in double digit inflation, which hit a 15-year high in October at 25 percent, also contributed to the lira weakening this year.

“Inflation printed at 25.2 percent in October and may go up further. The economy is slowing visibly due to high (but not high enough) rates and a collapse in confidence,” said Christian Maggio, head of emerging market strategy at TD Securities.

“Turkey’s idiosyncrasies could again trigger a sharp sell-off during the next three months, but the carry cost of USDTRY longs remains too high,” Maggio said.

The main share index fell 1.05 percent, with shares in Halkbank falling 2.59 percent after its third quarter net income fell short of expectations. Shares in oil refiner Tupras dropped 3.8 percent. (Reporting by Marc Jones and Ezgi Erkoyun; Writing by Tuvan Gumrukcu; Editing by Angus MacSwan)