Turkish Lira plumbs to new lows as risks continue to erode confidence

ANKARA - Reuters

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The Turkish Lira plumbed to new record lows on Sept. 14, while the cost of insuring exposure to Turkish debt hit a three-year high, as security fears and deepening political uncertainty continued to weigh on investor sentiment, while other emerging market assets edged up before a Federal Reserve (Fed) meeting that may raise U.S. interest rates this week.

The Justice and Development Party (AKP) failed to retain its single-party majority after a parliamentary election in June, forcing the country to snap polls on Nov.1, while the collapse of a ceasefire with Kurdish militants has killed hundreds since July.

“Until the political storm clouds clear, nobody really wants to move on the investment front,” said Jonathan Friedman from global risk consultancy Stroz Friedberg.

“The concern is that you’ll have political instability continuing for at least six months and in the meantime lost two quarters of growth. It’s very hard for investors to make a case for going into Turkey right now,” he added.

The lira, one of the worst performing emerging market currencies this year, hit a record low of 3.0689 before recovering some ground. It was at 3.064 to the U.S. dollar at 10:37 GMT.

The cost of insuring exposure to Turkish debt hit its highest level since January 2012, according to data from Markit, with five-year credit default swaps (CDS) rising five basis points on the day to 300 basis points.