Turkey’s lira – expect the slide to continue

The Turkish lira is at record lows against both the euro and the dollar – it has fallen by 32% against the USD in a year.

Andrew Van Sickle
By
published
in Features

One of the most prominent victims of the emerging-market sell-off has been Turkey. The Turkish lira is at record lows against both the euro and the dollar it has fallen by 32% against the latter in a year.

The latest cloud on the horizon is the end of coalition talks, following an inconclusive election in June. New elections are due to take place in November. "The big risk is that we end up having repeat elections and nothing changes. That introduces a lot of uncertainty," says Manik Narain of UBS.

To make matters worse, Turkey's increasingly authoritarian President Recep Erdogan has now stepped up a military campaign against Kurdish separatists, in an apparent bid "to rally support for the government and thus salvage his ambitions for greatly expanded powers".

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Meanwhile, growth has slowed to around 3% a year and inflation is stuck around almost 7%. The falling currency has stoked price rises, and the central bank looks set to raise interest rates to dampen inflation and shore up the currency crimping growth further.

Turkey also has a current-account deficit of almost 6% of GDP, so it needs foreign money to bridge this gap with the rest of the world. Much of this capital is made up of short-term investments in stocks or bonds, or "hot money". This money tends to turn tail when emerging markets fall out of favour, so a key source of support for the economy goes into reverse.

The lira's slide looks set to continue.

Andrew Van Sickle
Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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