The Turkish Lira continued to lose ground against key currencies Friday, in a depreciation triggered by worries over an unsustainable current account deficit. As gold soared to a new record in Istanbul trading, the Turkey representative of the International Monetary Fund warned of “rising risks” both in Turkey and the world.

Gov. Erdem Başçı of the Turkish Central Bank meanwhile spoke in the Aegean province of Denizli, saying both the public and the private sector need to have “a more balanced” position regarding foreign currency debt.

Under pressure

As the Hürriyet Daily News went to press Friday evening, the lira was on a downward spiral, trading at levels not seen since March 2009. The U.S. dollar was trading at around 1.693 liras, up 12.2 percent against the Turkish currency since April 8. The euro was further boosted by Thursday evening’s agreement between eurozone policy makers and was trading over a record high of 2.432 liras – up 17 percent since the start of the year.

“The lira remains under pressure, given the combination of concerns over the wide current account deficit, and the still pretty dovish reaction function from the Central Bank and the government,” said Timothy Ash, an emerging markets economist at the Royal Bank of Scotland.

In Istanbul’s Grand Bazaar, one gram of 24-carat gold bullion surged to 87.35 liras, breaking a new record, while the traditional Cumhuriyet gold coin was selling for 589 liras.

In contrast, equity trading at the Istanbul Stock Exchange suffered. The benchmark ISE-100 index fell 1.8 percent to close the week at 59,802 points, down 5.5 percent since the start of July.

If institutions have short positions in their accounts, the tolerance for currency swings would be lower, said Gov. Başçı, speaking at a university in Denizli.

Advice from the Central Bank

“Thus, it is good if you limit your short positions,” Başçı was quoted as saying by the Anatolia news agency. “Both the public and the private sectors should have more balanced positions regarding foreign currencies. Some even say a long position is desirable.”

Turkey’s current account deficit, which surpassed an annual $68 billion is of May, remains “the only risk factor” for Turkey, Başçı said, adding that he foresees “zero quarterly growth” in the second quarter of the year. “The rise in imports has stopped. As of April, ex-energy imports have started to decline,” he said. “In the second quarter, we expect positive contribution to growth from net exports.”

Başçı also said Turkey’s situation is “good,” in fact, “we’re looking into it whether it’s too good or not.” The country is more resistant regarding external shocks, he added.

“There’s no need to be over-concerned,” he said, according to Reuters. “We’re following the situation closely and are ready for various scenarios.”

Speaking at the same event, Mark Lewis, the IMF’s Turkey representative, said inflows into developing economies are triggering loan expansion. “Among a group of countries, Turkey has the biggest loan growth. Regarding financial stability, risk has increased in Turkey,” he said. “In the markets, financial sensibility has increased.” Lewis urged “tight policies” for developing economies.