Political turmoil pummels Turkish lira

Turkey's lira has fallen to a record low against the dollar amid fears over political instability.

Market turmoil in Turkey worsened this week. The Turkish lira has recently plunged to a series of record lows against the US dollar, amid fears over political instability and foreign money fleeing the market.

It hit yet another low of 2.27 to the dollar after the central bank decided against raising Turkey's key interest rate (which could have halted the slump by raising the yield on Turkish assets and making them more attractive to buyers). Turkish stocks are down by 30% from their 2013 high.

What the commentators said

Prime Minister Recep Tayyip Erdogan has become increasingly authoritarian and paranoid as a corruption scandal has engulfed his administration, said Dombey. He wants to keep rates low to bolster growth in an election year, and has put pressure on the central bank to do so.

As a result the bank has "resorted to various intricate and esoteric intervention and liquidity measures", such as tweaking interbank rates to tighten policy, said Richard Barley in The Wall Street Journal. But all of these "have failed to stop the rot".

Previous bouts of lira weakness have only been stopped by "hefty rate increases". It's hard to see how the central bank can resist market pressure to push rates higher for much longer.

By delaying the inevitable, added Capital Economics, the bank will end up having to hike rates all the more aggressively in the future, worsening the squeeze on growth.

In the meantime, said Delphine Strauss in the Financial Times, the question is "how far Turkish business with debts denominated in foreign currencies can withstand more falls in the lira, and how far foreign investors will tolerate them" before fleeing and making the crisis even worse.

Recommended

The charts that matter: growth stocks continue their slide
Global Economy

The charts that matter: growth stocks continue their slide

As the US tech stocks and the dollar fell further this week, here’s what happened to the charts that matter most to the global economy.
15 Jan 2022
US inflation is at its highest since 1982. Why aren’t markets panicking?
Inflation

US inflation is at its highest since 1982. Why aren’t markets panicking?

US inflation is at 7% – the last time it was this high interest rates were at 14%. But instead of panicking, markets just shrugged. John Stepek explai…
13 Jan 2022
Bitcoin’s new year is off to a bad start – what does the rest of 2022 hold?
Bitcoin & crypto

Bitcoin’s new year is off to a bad start – what does the rest of 2022 hold?

Bitcoin has had its worst-ever start to a year. But it remains the “future of money”, says Dominic Frisby. Here, he looks at what might come next for …
12 Jan 2022
The booming jobs market points to inflation lasting for longer
Economy

The booming jobs market points to inflation lasting for longer

It’s a good time to be looking for a job, with plenty of vacancies and wages rising. But higher wagers are driving inflation up – and it’s not just a …
11 Jan 2022

Most Popular

Five unexpected events that could shock the markets in 2022
Stockmarkets

Five unexpected events that could shock the markets in 2022

Forget Covid-19 – it’s the unexpected twists that will rattle markets in 2022, says Matthew Lynn. Here are five possibilities
31 Dec 2021
Which investment trusts performed the best in 2021?
Investment trusts

Which investment trusts performed the best in 2021?

Shivani Khandekar runs through the top ten investment trusts of 2021 – and the worst performing trusts – and looks ahead to 2022.
7 Jan 2022
Interest rates might rise faster than expected – what does that mean for your money?
Global Economy

Interest rates might rise faster than expected – what does that mean for your money?

The idea that the US Federal Reserve could raise interest rates much earlier than anticipated has upset the markets. John Stepek explains why, and wha…
6 Jan 2022