Turkish Markets in Turmoil After İmamoğlu’s Detention: Dollar Surges Past 41 TL

The financial markets in Turkey saw extreme volatility following the detention of Istanbul Mayor Ekrem İmamoğlu, with the dollar surpassing 41 TL and the euro exceeding 45 TL. The stock exchange also faced a sharp decline, triggering a circuit breaker that temporarily halted trading.

According to economists, the Central Bank of Turkey (CBRT) did not intervene directly but instead used public banks to inject liquidity into the market. Estimates suggest that around $11 billion worth of foreign currency was sold, though financial analyst Kerim Rota believes the figure could be as high as $25 billion.

Central Bank’s Indirect Intervention

As reported by Berfu Kargı from KARAR, gold prices also skyrocketed to 4,000 TL per gram, adding to the financial turbulence. While the market later stabilized somewhat, analysts pointed out that Turkey's foreign reserves were significantly depleted due to interventions.

Economist Iris Cibre highlighted that rather than directly stepping in, the CBRT relied on state-owned banks to manage the foreign exchange market.

"The Central Bank has been intervening through public banks for a long time. If it did it directly, it would have to explain."

She further noted that the CBRT supplied the public banks with foreign currency, meaning that the intervention would ultimately be reflected in the Central Bank’s balance sheet.

Rising Political Risks and CDS Premium

Financial analysts emphasized that political uncertainty was a key driver of the market’s reaction, with investors quickly shifting towards foreign currencies. This led to a spike in Turkey's 5-year credit default swap (CDS), signaling increased risks. Additionally, government bonds experienced heavy sell-offs, further straining the financial outlook.

CBRT’s Policy Response: Interest Rate Adjustments

To stabilize the exchange rate and curb demand for foreign currency, the CBRT introduced additional monetary measures. HSBC Asset Management Chief Economist İbrahim Aksoy explained that the CBRT:

• Raised the overnight lending rate from 44% to 46% in an emergency move.

• Suspended one-week repo auctions to limit excess liquidity in the system.

• Introduced TL-settled forward foreign exchange sales transactions to ease volatility.

“These steps may aim to reduce the demand for foreign exchange in two ways. First, by slowing down domestic investors’ switch from TL to FX. Second, by making it more expensive for foreign investors to take short positions against the TL.”

Analysts predict that in the coming days, interest rates in TL deposit auctions and swap markets will likely rise to around 46%, aligning with the CBRT’s broader strategy to maintain stability.