ISTANBUL, Nov 22 (Reuters) - A rebound in Turkey's lira fizzled on Monday and it dipped to a fresh historic low, as analysts said emergency rate hikes would be needed soon, while speculation about a cabinet overhaul and data showing a new low in consumer confidence also weighed.
The lira , traded at 11.40 to the U.S. dollar at 1701 GMT, logging record lows for a tenth straight session. The currency has lost a third of its value this year.
Last Thursday, under pressure from President Tayyip Erdogan, the central bank cut its policy rate by 100 basis points to 15% well below inflation of nearly 20%, and signalled more easing would come.
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In a news conference late on Monday, Erdogan defended the policy and said tighter monetary policy would not lower inflation, vowing to succeed in his "economic war of independence".
"I reject policies that will contract our country, weaken it, condemn our people to unemployment, hunger and poverty," Erdogan said.
The central bank has now slashed rates by 400 basis points since September in what many analysts say is a risky policy mistake. Societe Generale said it would need to deliver an "emergency" hike as soon as next month.
The monetary easing has "been economically and fundamentally unjustified," SocGen analysts wrote in a note to clients.
"Erdogan seems to be more aggressively pursuing a strategy of 'going for growth' to reverse the decline in his popularity ratings," they added.
"However, the clear toll continues to be currency devaluation, higher inflation, increased strain on corporate balance sheets, risks of currency runs, higher dollarization, and financial instability," SocGen said.
The lira plunged some 12% last week alone, the worst performing currency globally. Its 6% crash on Thursday was the biggest since Erdogan, a self-described "enemy of interest rates", sacked hawkish central bank chief Naci Agbal in March. read more
Erdogan has called for stimulus to boost exports, investment and jobs. The central bank says inflation pressure is temporary though likely to last through mid-2022.
Traders said the unease was heightened late last week by open speculation among politicians and investors that Erdogan might soon replace Finance and Economy Minister Lutfi Elvan, although he has not indicated any pending move.
Tim Ash, a veteran Turkey watcher at BlueBay Asset Management, speculated at the end of last week whether Elvan would still be in his post after the weekend.
"It feels a bit ominous as he has literally been the last man standing in the administration in terms of someone credible/trusted," Ash wrote in a note.
The Turkish economy has rebounded strongly this year from the initial pandemic fallout, but the lira meltdown has unleashed growing concerns about the outlook and calls for defensive measures. read more
Consumer confidence slumped 7.3% to 71.1 points in November, official data showed on Monday, its lowest level since the series was first published in 2004, reflecting the currency sell-off. read more
Inflation is four times the official target and has been in double digits for most of the last four years.
Analysts at MUFG bank warned that the Turkish authorities' strategy of using credit to fuel growth could misfire, creating "a vicious cycle wherein inflation spirals into such high levels that spurs an increase in dollarisation and lira depreciation".
Only higher interest rates are likely to break such a feedback loop, they added, predicting 300 points of hikes in the first half of next year.
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Additional reporting by Ece Toksabay, Editing by Jonathan Spicer, Ed Osmond and Toby Chopra
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