Turkey’s lira is headed for its biggest weekly drop since the start of the year, after heavy interventions by state lenders in the past few days failed to stem losses as investors fled risky assets amid rising geopolitical tensions.
The lira has fallen 3.9% this week to 14.1970 per dollar, making it among the worst-performing emerging-market currencies tracked by Bloomberg. Only Russia’s ruble and the currencies of two other Eastern European countries, Poland and Hungary, have fared worse amid Russia’s attack on Ukraine.
State banks sold about $3.5 billion to support Turkey’s lira this week, according to traders who asked not to be identified because they’re not authorized to speak publicly. State banks don’t comment on their interventions in the foreign-exchange market, but a former Turkish central bank governor said in 2020 that government-owned lenders carry out transactions in line with regulatory limits and may continue to be active in the currency market.
“The slide in the lira past the 14 per dollar level reflects the immediate worsening in the risk environment following Russia’s attacks on Ukraine, as the lira is particularly vulnerable to risk aversion,” said Ima Sammani, a foreign-exchange analyst at Monex Europe.
Citizens should refrain from taking “risky market positions,” the Treasury & Finance Ministry said in a statement via Twitter, urging them to continue trusting the domestic currency and lira assets.
This week’s intervention resulted in a shortage of lira liquidity offshore, spurring a surge in the cost of overnight funding to more than 104% from 14.5% a week earlier.
An extended conflict between Russia and Ukraine could affect Turkey’s economy if it results in fewer tourists from those countries or higher energy and food costs that could fuel consumer inflation already running at about 50%.
What Bloomberg Economics Says…
About Russia’s invasion of Ukraine: “A military escalation is likely to have a negative impact on visitors from these two countries and put as much as a quarter of Turkey’s tourism revenue of around $24.5 billion annually at risk. This hit could result in a weaker lira that feeds into higher prices.”
— Selva Bahar Baziki, Turkey and Sweden economist for Bloomberg Economics.
Bloomberg
