Turkish markets hit hard by corruption scandal, and it's about to get worse
Turkish financial markets slumped on Wednesday despite a promise from the central bank to support the lira, after one of three Turkish ministers resigning in a corruption scandal called for Prime Minister Tayyip Erdogan to follow suit.
The unprecedented challenge raised the temperature in a week-long crisis that has pitted a defiant Erdogan against the Turkish judiciary and reignited anti-government sentiment, simmering since the mass protests of mid-2013.
The financial community in Turkey, and foreign investors in the country, generally see Erdogan as a known quantity who has supported a decade of growth and a broadly economically liberal policy drift.
The lira weakened to 2.0850 against the dollar by 1540 GMT, from 2.0650 before the minister’s remarks.
The central bank on Tuesday made its most clear commitment yet to ramping up its support of the lira, promising to sell at least $6 billion in foreign currency by the end of January.Already under pressure this year in anticipation of the U.S. Federal Reserve’s decision this month to stem a flood of dollars that has boosted global emerging markets, the lira has been beaten down further by the row around the corruption probe.
Analysts say it does not have the currency reserves to defend the lira aggressively for long. Turkey 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.
Turkey’s main stock index fell 4.2 percent to 66,096.57, adding to heavy losses from last week.“The resignation of environment minister and his comments came during the trading session, increasing tension in the market,” said A Yatirim analyst Ilter Bulut.
“Rumours that a second wave of detentions may follow brought more sell-off in the market. The reaction is very strong because the market is very fragile.”The yield on the 10-year benchmark bond rose to 10.09 percent from 9.85 percent earlier.
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