Turkish lira hits record lows amid piling political crisis

ISTANBUL

DHA Photo

The ongoing government and judiciary crisis have rattled markets, pushing the lira to a fresh record low of 2.1750 against the U.S. dollar, sending the stock market plummeting to its lowest in 17 months, while the Euro reached an all-time high by passing 3 liras for the first time.

The currency also weakened the historical record low level of 2.58 against the dollar/euro basket.

Turkish debt insurance costs also surged to 18-month highs as investors were rattled by a deepening political crisis that has engulfed top politicians, police officers and businessmen.

The corruption scandal that has exposed fissures in the ruling AK Party before next year’s elections has taken a heavy toll on Turkish financial markets, with stocks set for their worst weekly performance since 2008.

The country’s main index, BIST 100, fell over four percent since the beginning of the day, being traded at around 61,900 points as of 11.45 a.m.

The index plunged to 61,620 in the morning, seeing its lowest level since July 2012.

The cost of insuring exposure to Turkish debt in the credit default swaps (CDS) market hit 18-month highs of 253 basis points, more than 30 bps up from the previous close, according to data from Markit.
The 5-year CDS contract traded at 191 bps in mid-December just before the crisis erupted.

Central Bank silent

The financial markets, which have been shaken along with mounting political tension over the corruption investigation, cannot manage to pick up in the absence of concrete intervention from the Central Bank.

Police on Dec. 17 detained dozens of people, among them the sons of the interior minister and two other cabinet members, after months of graft probes that were kept secret from commanders who might have informed the government in advance.

The latest nail in the coffin, the head prosecutor in a new corruption case said the investigation files have been “taken from his hands” after he gave instructions for the arrest of suspects, while blasting the judicial institution for obstructing the probe.

“Political developments in Turkey over the past 10 days have introduced uncertainty into the system that has not been present for a number of years,” Unicredit said in a note.

“Before these events, few questioned the ability of AKP to win the upcoming elections in the face of a disjointed opposition but this can no longer be considered a done deal.”