Turkey’s currency dropped to its lowest level since October 2018 , while its bonds came under increasing pressure, after a decision by the country’s election council to nullify a mayoral election in Istanbul which increased investor concerns. The lira dropped 1.6 per cent on Tuesday, bringing it to TL6.157 to the US dollar, extending Monday’s declines and taking the lira to levels not seen since the aftermath of a currency crisis that took place in the summer of 2018. Tuesday’s drop brings the fall over the past two days to 3.3 per cent, Refinitiv data show.
The new sanctions on Thursday were placed on two of Presidents ministers, with the U.S. saying they played a leading role in the arrest and detention of evangelical pastor Andrew Brunson.
He’s charged with supporting a group blamed for an attempted coup in 2016. U.S. Secretary of State Mike Pompeo is expected to meet Turkey’s top diplomat at the ASEAN summit Friday. Inflation in the country has been rampant with consumer prices rising almost 16 percent in July alone. While the country’s central bank has raised interest rates to support the currency and quell inflation, the Central Bank of Turkey unexpectedly held its benchmark interest rate at 17.75 percent on July 24. Erdogan has repeatedly insisted that rates should not be raised too high, triggering suggestions that the central bank doesn’t act with full independence.
The ruling inflicts a dramatic blow to the rule of law and weakens democratic standards in Turkey,” said Cristian Maggio, head of emerging markets strategy at TD Securities. Turkey’s government debt was also under pressure. Yields on the 10-year dollar-denominated paper maturing in 2029 climbed 13 basis points (0.13 percentage points) to 8.017 per cent, reflecting a fall in prices. Meanwhile, the cost to insure the Turkey’s debt against default using five-year credit default swaps also jumped to the highest level since late March, Markit data show.
The lira hit an all-time low of $5.1125 versus the dollar shortly before midnight Thursday eastern time. Mildly better-than-expected Turkish inflation data released Friday morning provided brief respite and at around 8:00 a.m. ET the currency had risen back to $5.0700.