Given the tensions between Turkey and France in particular, and given the policy of the Turkish central bank, the lira has fallen to a new low. Monday morning, 8.03 Turkish lira was traded for one US dollar and 9.52 lira for one euro. Since the beginning of the year, the Turkish lira has lost 26 percent against the US dollar.
Last week, the Turkish central bank left its policy rate unchanged at 10.25 percent despite high inflation. Analysts had expected an increase. Then there are the tensions with France. French President Emmanuel Macron had stated that Islam was in “crisis”.
Turkish President Recep Tayyip Erdogan then even asked Macron to have his ‘state of mind’ checked. Due to the continuing decline in the Turkish lira, more and more foreign investors are selling bonds from the country.
“It was so predictable after the Turkish central bank was disappointed with its interest rate decision last week,” said Timothy Ash, chief emerging markets analyst at asset manager Blue Bay. Despite the years of falling prices, it surprisingly decided not to raise interest rates again.
“As the entire country suffers from a huge mountain of foreign currency loans, currency weakness is becoming an acute problem,” warns Thomas Gitzel, chief economist at VP Bank.
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The Turkish currency is affected by various sources of conflict
“Measured by gross domestic product, the external debt is 62 percent. A balance of payments crisis is within the grasp of the possibility. Analysts cited political tensions with the US and France, the dispute with Greece over natural gas reserves in the Mediterranean or the war between neighboring Armenia and Azerbaijan over the Nagorno-Karabakh region as further negative factors for Turkey’s stock markets.
Turkey is supporting Azerbaijan in this conflict. Due to the currency decline, dollar bond yields rose to 7.640 percent on Monday through 2034, the highest level in about a month. The same was true for the titles with a term of 2041, which yielded 7.817 percent. The Istanbul Stock Exchange’s leading index lost one percent. (AFP, Reuters)