The Central Bank of Turkey's decision to keep rates steady depreciated the lira further on Tuesday evening, causing it to reach a new low of 2.90 to the US dollar.
The one-week repurchase rate was held at 7.5 percent for the sixth consecutive month, while the overnight borrowing and lending rates were left unchanged at 7.25 percent and 10.75 percent respectively.
The bank said that it will narrow its interest rate corridor system, which is the gap between the bank’s overnight lending and borrowing rates. The reserve requirements will be also adjusted when necessary.
Another key driver to the fall in the lira was the central bank's statement on policy changes which will take effect before the US Federal Reserve hikes interest rates, possibly in September.
Meanwhile, failed negotiations on the formation of a coalition government between Turkey's Prime Minister and leader of the governing Justice and Development Party (AK Party) Ahmet Davutoglu, the Nationalist Movement Party (MHP), and the main opposition Republican People’s Party (CHP) hint to the possibility of an early election.
On Tuesday evening Turkish Prime Minister Ahmet Davutoglu will return the duty to form a government to President Erdogan.