Turkish Lira Drops as Political Turmoil Takes its Toll
Political turmoil in Turkey in addition to the country’s escalating dispute with the Trump administration spilled into global financial markets on Friday, driving the country’s currency to a record low.
The plunge within the Turkish lira raised fears in which Turkey’s problems could affect Asian in addition to European banks in which have invested within the region, in addition to in which contributed to declines in stock markets around the globe. in which was the latest example of how troubles in a country that has a relatively little economy yet big problems could threaten financial stability further afield.
On Friday, a dollar briefly bought more than six lira, a record, though the Turkish currency later recovered some of its losses.
Over all, the currency has lost more than 15 percent of its value against the dollar This kind of week. The yield on Turkish 10-year bonds has also risen sharply, to nearly 20 percent, meaning traders are demanding much higher returns for what they see as an increasingly risky investment.
The loss of confidence within the lira can be at least partly attributed to Turkey’s clash with the United States over the detention of an American pastor, Andrew Brunson, who was swept up in a crackdown after the failed attempt in 2016 to oust President Recep Tayyip Erdogan.
Washington has imposed sanctions against two ministers in Mr. Erdogan’s government, in addition to Ankara has retaliated. Representatives of Turkey in addition to the United States met in Washington This kind of week yet failed to resolve the conflict.
“The associated diplomatic row continues to hurt the country’s assets,” Jim Reid in addition to Jeff Cal, analysts at Deutsche Bank, said in a note to investors on Friday. “Countries in which are in a diplomatic battle with the U.S. at the moment (e.g. China, Turkey in addition to Russia),” they wrote, appear “to be suffering within the markets.”
yet Turkey’s problems go much deeper than its relations with the United States, a NATO ally.
The lira has taken sharp falls within the weeks since Mr. Erdogan acquired sweeping executive powers with his re-election in June.
There is usually widespread fear among foreign investors in which Mr. Erdogan’s populist, authoritarian government is usually pursuing irresponsible economic policies while undercutting the independence of the central bank. in which, analysts fear, is usually preventing the country coming from taking necessary steps to put the economy on a more stable footing.
In an example of his increased role, Mr. Erdogan has resisted calls for a rise in interest rates to curb inflation in addition to to ease pressure on the lira.
The sharp decline of the lira, in addition to worries over the wider consequences of economic turmoil in Turkey, helped drive the main stock indexes in Tokyo, Frankfurt in addition to Paris more than 1 percent lower.
As was the case when Greece helped cause a financial crisis, the reaction within the markets was disproportionate to Turkey’s importance to the globe economy.
Investors fear in which banks in Asia in addition to Europe could suffer because they have invested in Turkish assets like stocks, bonds or the currency itself. Problems at banks could then spread to additional sectors of the economy.
Mr. Erdogan has, however, dismissed concerns over declines within the country’s financial in addition to economic prospects. In a speech on Thursday, he blamed outsiders for the country’s difficulties in addition to insisted in which Turkey would certainly weather the current storm.
“They have various campaigns” against Turkey, Mr. Erdogan told a crowd of supporters in Guneysu, a town within the northern province of Rize, where his parents are coming from. “Do not lend an ear to them.”
“Don’t forget, if they contain the dollar, we have our people, our Allah,” he continued. “We have worked hard, in addition to we are working hard.”
“Where were we 16 years ago,” he said, referring to his first election triumph, “in addition to right now where are we?”
His speech was quickly lampooned on social media, however. “When the landlord asks for the rent, is usually in which possible to pay just by saying, ‘You have your apartment, yet we have our Allah?’ ” Iskender Baydar wrote on Twitter.
Follow Jack Ewing on Twitter: @JackEwingNYT.
Carlotta Gall contributed reporting.