The Turkish lira tumbled nearly 5 percent against against the U.S. currency on Monday as markets reopened after the week-long Muslim public holiday of Eid al-Adha.
The slide left the lira down 38 percent this year, driven by worries over Turkish President Tayyip Erdogan’s economic policies and his current stand-off with the United States over the fate of Andrew Brunson, an American pastor who is being tried in Turkey on terrorism charges that he rejects.
Investor attention refocused on the diplomatic row between Ankara and Washington which is putting the world economy on edge.
“The exchange rate sensitivity created by the tension between us and the United States continues,” Seda Yalcinkaya Ozer, an analyst at brokerage Integral told Reuters.
The NATO allies have exchanged tit-for-tat tariffs on each other’s exports over the Brunson dispute. Relations between the two allies have also been strained between differences over the bloody war in Syria.
In a conference call before the holiday, Finance Minister Berat Albayrak told investors that Turkey would emerge stronger from the crisis, insisting its banks were healthy. Erdogan said the plunge in the Turkish lira "isn't realistic" and does not reflect the country’s economic fundamentals.
The Central Bank of the Republic of Turkey (CBRT) has taken measures to underpin the local currency in recent weeks, including cutting limits for Turkish banks’ swap transactions.
On Monday, Borsa Istanbul, Turkey's stock exchange, said it had started establishing a swap market to serve all financial sector participants. In the first stage, the SWAP market is planned to be operated for foreign exchange markets.
The CBRT has been under pressure from Erdogan, who was re-elected in June, to keep interest rates low despite inflation that was near 16 percent in July, its highest in more than 14 years and three times the central bank’s 5 per cent target.
The lira is now the world’s worst performing currency in 2018, overtaking crisis-hit Argentina.
Turkey's BIST index of blue-chip stocks is down 40 percent in dollar terms this year. It is the second-worst performer of 30 emerging market stock indices, behind only Venezuela, according to Reuters data.
In his first comments on the currency crisis since before the holiday, Erdogan said on Aug. 25 the commitment and determination of Turks was the guarantee needed to combat attacks on Turkey’s economy, Hurriyet Daily reported.
Two focuses of interest for investors will be Turkey’s Medium Term Program for the economy, which Albayrak said he would announce in the first half of September and the central bank's next policy-setting meeting on Sept. 13.
Meanwhile, Qatar's Emir Sheikh Tamim bin Hamad Al Thani announced a $15bn investment into Turkey's financial markets and banks.
Monthly evolution of the Turkish Lira against the U.S.
01.01.2018 -31.07.2018 -23.51%