The freefall in the lira comes after one of three ministers resigning in an ongoing corruption scandal called for Prime Minister Recep Tayyip Erdoğan to follow suit late on Wednesday. The lira still remains weak despite a promise from the central bank to support the currency at the beginning of this week. The lira extended losses through the end of Thursday when an İstanbul prosecutor said an ongoing graft probe case he had been working on has been taken away from him.
Like the greenback, the euro also saw its historic highs against the Turkish currency on Thursday to above 2.91.
The main benchmark Bourse İstanbul (BIST) continued its losing streak with more than 2.7 percent fall on Thursday, while the yield on the two-year benchmark bond rose to 9.73 percent. The lira recovered to 2.098 later in the day after the central bank injected $450 million in cash into the markets. The financial community and foreign investors in Turkey generally see Erdoğan as a politician who has supported a decade of growth and a broadly economically liberal policy drift. An ongoing corruption probe that includes close ruling party allies and Wednesday’s resignations have only fueled volatility in the lira, which has recouped some losses since the mass anti-government protests of mid-2013.
No sign of reconciliation came from Erdoğan, only to make things even worse. Erdoğan, late on Wednesday, lashed out at many diverse groups which he accused of conspiring with foreign elements abroad to take down his ruling Justice and Development Party (AK Party) government.
Analysts say Turkey does not have the currency reserves to defend the lira aggressively for long. Turkey had foreign-exchange reserves, excluding gold, of $115 billion as of Dec. 13, according to data compiled by Bloomberg, compared with $480 billion for Russia and $376 billion for Brazil. The country needs to import almost all of the oil it uses, which gives it one of the world’s biggest current-account shortfalls and makes it heavily dependent on foreigners buying its stocks and bonds to bring in capital.
Already under pressure this year by expectations that the Fed would begin to stem a flood of dollars that has boosted global emerging markets, the lira was beaten down further by a police investigation in which dozens of senior businessmen and people with links to the government were detained last week.
Twenty-four people, including the sons of two ministers and the head of state-run Halkbank, were formally charged in connection with the corruption inquiry last week. Turkey is exposed to any tightening of the supply of cash globally as it needs to import almost all of the oil it uses, which gives it one of the world’s biggest current-account shortfalls and makes it dependent on capital inflows.
Turkish markets were following a national security council and weekly US jobless claims on Thursday.