Markets in Turmoil as Imamoğlu’s Detention Triggers Economic Shockwave

The detention of Istanbul Metropolitan Mayor Ekrem İmamoğlu sent domestic markets into chaos, leading to an unprecedented currency intervention by Turkey’s Central Bank. In an effort to stabilize the surging exchange rate, state banks reportedly sold $8 billion, yet this move failed to halt the Turkish Lira’s depreciation.

Financial Turmoil Following the Detention

Markets plummeted sharply at the opening, with investors reacting to the political uncertainty. The Central Bank attempted to counteract the record-breaking surge in the dollar and gold prices by selling off foreign reserves, but the volatility persisted.

According to Bloomberg, investors reassessed Turkey’s political risk, leading to a rapid exodus from lira-denominated assets and an increase in the country’s borrowing costs.

Despite government reassurances, including a statement from Treasury and Finance Minister Mehmet Şimşek that economic policies would remain unchanged, Bloomberg reported that these efforts did little to restore investor confidence.

Market Reaction at a Glance

• Turkish Lira depreciated 11% against the dollar in the early hours, briefly crossing 40 per dollar.
• The Central Bank’s intervention brought the exchange rate down to 38.85, but daily losses remained at 5.5%.
• BIST 100 Index plunged 7%, triggering a circuit breaker and halting trading.
• 10-year bond yields spiked 139 basis points, reaching 29.58%.

Political Unrest Driving Market Volatility

The political impact of İmamoğlu’s detention was described as a “major shock to the system” by Nick Rees, director of macro research at Monex Europe. He noted that markets had largely ignored political risks in Turkey until this development, which caused the country’s risk premium to surge.

According to Bloomberg, international investors now perceive Turkey as an increasingly unstable market, especially in light of previous crackdowns on opposition figures. The report referenced:

• The arrest of nationalist politician Ümit Özdağ in January
• Investigations against critical journalists
• The ongoing imprisonment of former HDP co-chair Selahattin Demirtaş

Implications for Turkey’s Political Future

With Turkey’s next presidential election scheduled for 2028, Bloomberg suggested that İmamoğlu’s arrest could fuel speculation about early elections. Analysts argue that President Recep Tayyip Erdoğan may seek a constitutional amendment for a third term or call early elections. The removal of İmamoğlu, seen as one of the opposition’s strongest challengers, is viewed as a strategic move in this process."