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The Turkish lira deepened its slide on Thursday, falling to a new low against the US dollar, pressured by news of a government corruption probe involving bribery and money laundering.
On December 17 the sons of three cabinet ministers and the chief executive officer of the Turkish state-run bank Halkbank were arrested. The investigation has also resulted in the dismissal of numerous cabinet officials.
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Consumption tax increases announced on Wednesday reduced the likelyhood an interest-rate hike, weighing further on the Turkish currency. The increase in consumption taxes could substantially add to inflation this year, potentially making the currency less desirable to hold. Turkey's large current-account deficit is another factor contributing to the vulnerability of the currency.
The benchmark BIST 100 stock index is also trading shaply lower amid the political instability.
Babacan Comments
Speaking at a business conference in Ankara on Thursday, Deputy Prime Minister Ali Babacan addressed the issue of instability, saying, "It is a temporary situation. It is to do with the political perception."
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Turkey is due to hold local elections in March, with presidential elections scheduled for later this year.
Dollar Reserves
Earlier in the week, the lira saw a brief respite after the Turkish central bank sold off some of its dollar reserves in order to bolster the currency. The central bank sold a total of $1.2 billion on Monday and Tuesday.
US Monetary Policy
The recent reduction of stimulus from the Federal Reserve has played a part in the weakening lira. Last month Federal Reserve policy makers agreed on the first reduction of their $85 billion monthly bond-buying program, contributing to a movement away from emerging markets currencies in favor of the US dollar. The South African Rand, another emerging market currency impacted by tighter US monetary policy, fell to its lowest levels since March of 2009 on Thursday.
USD/TRY Daily Chart
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.