Turkey's central bank has vowed to stick with its unorthodox steps to manage the fall in the lira, saying its moves to drive up funding costs were working and would continue until the inflation outlook improves. As Sonia Legg reports, the lira is one of the world's worst-performing currencies and the economy shrank in the third quarter for the first time in seven years.
His refusal to implement a conventional rate hike has been the subject of much debate. But Turkey's central bank chief is confident his more unorthodox method of managing the free falling lira is working. (SOUNDBITE) (Turkish) TURKISH CENTRAL BANK, GOVERNOR, MURAT CETINKAYA, SAYING: "The steps we have taken, including our policy reaction in January shows the bank displays an efficient management model in terms of financial stability and price stability and uses every tool in effective combination." The lira has fallen more than 7 percent this month and it saw double-digit declines in both 2015 and 2016. That makes it one of the world's worst-performing currencies. The economy also shrank in the third quarter for the first time in seven years. It all means inflation is forecast to hit 8 percent by the end of the year - 1.5 percent higher than the central bank's previous report. (SOUNDBITE) (English) CRAIG ERLAM, SENIOR MARKETS ANALYST, OANDA, SAYING: "It is stuck between a rock and a hard place. The economy is suffering yet inflation is well above expectations. It is not an easy task to deal with, especially at a time when you've got so much political uncertainty." And that's one of the main causes of Turkey's problems. New data shows the number of tourists slumped by nearly a third in 2016 after a spate of bombings and a failed coup. The sector accounts for almost five per cent of GDP and financed almost half the country's current account deficit in the first 11 months of 2016. Ratings agency Fitch downgraded Turkey's sovereign debt to "junk" on Friday, hours after Standard & Poor's lowered its outlook to "negative" from "stable" Both said pressure on the central bank was one of their concerns.