Turkish lira touches new lows after scandal

ISTANBUL: Prime Minister Recep Tayyip Erdogan’s public feud with Turkey’s judiciary and police over a corruption scandal shaking his government continued to weigh on Turkish markets Thursday, with the lira touching record lows.

Turkish assets have been battered ssince mid-December by a wide-ranging corruption investigation which came to light with a series of dawn raids and arrests that led to the resignation of three ministers. Erdogan has rejected the accusations as an attempt by a U.S.-based sheikh to taint his AK Party before March local elections that will be a test of his support.

One of the main Turkish polls said Thursday that the AK Party has seen its popularity slip since before the scandal but remains comfortably ahead of the main opposition.

“A weak showing by the AKP in the local elections might give grist to the mill of [Erdogan’s] opponents within the AK Party – perhaps inspiring [President Abdullah] Gul and those around him to offer an alternative platform to sustain the AK Party’s legacy,” Timothy Ash, head of emerging market research at Standard Bank, said in a note.

But ratings agency Moody’s, which raised Turkey’s sovereign credit rating to investment grade last May, said Wednesday that domestic political risk was already embedded in its rating for the country.

The lira slipped slightly to 2.18 by 15:40 GMT from 2.17 late Wednesday, having touched an all-time low of 2.1980 earlier in the morning.

A Reuters poll showed Wednesday that the lira is likely to stabilize against the dollar in coming months despite pressure on it due to capital flows out of emerging markets and political uncertainty.

Most traders expect the central bank eventually to hike interest rates to support the currency, but it has so far refused to do so for fear of slowing economic growth, especially before the elections.

Having been closed for several hours Thursday because of a technical glitch, the main Istanbul stock index, closed down 1.36 percent at 66,413 points, underperforming the main emerging market index, which fell 0.94 percent.

The yield on Turkey’s 10-year benchmark bond eased to 10.04 percent from 10.18 percent late Wednesday. The yield on the two-year benchmark bond fell back below 10 percent.

A version of this article appeared in the print edition of The Daily Star on January 10, 2014, on page 5.




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