Turkey’s currency drops to record low on Russian missile defense tensions with U.S.

Turkey’s currency dropped to a historic low on Thursday, with the U.S. dollar buying 7.942 lira by late afternoon in Istanbul. The move is the latest in more than two years of consistent depreciation of the Turkish currency, most recently intensified by Ankara’s involvement in a slew of geopolitical conflicts including Libya and Nagorno-Karabakh, eastern Mediterranean resource disputes and its purchase of Russia’s S-400 missile defense system.

Washington just on Wednesday issued a stern rebuke in response to reports that Turkey was preparing to test the S-400 system, purchased from Russia despite vocal opposition from the U.S. and the rest of Ankara’s NATO allies. Turkey’s defense ministry has not commented on the reports, but condemnation from the State Department was swift.

Tensions with the U.S. and the threat of sanctions have contributed to the lira’s plunge in the past, including during Turkey’s 2018 recession. Fast forward to 2020 and the country of 82 million is involved in fresh conflicts while fighting a pandemic that has crippled its vital tourism industry, as well as facing a ballooning current-account deficit, double-digit inflation and mounting unemployment.

Turkey’s central bank did surprise investors by raising its main interest rate in late September from 8.25% to 10.25%, a move contrary to the president’s calls to keep them low. Turkey’s consumer inflation was revealed at 11.75% year on year for September, slightly lower than analyst estimates “but hardly encouraging still” as “core (inflation) pushes higher,” Timothy Ash, senior strategist at Bluebay Asset Management, commented on Monday. Slower-than-expected price increases of goods for last month helped offset the blow of the steadily weakening lira.

But with a central bank under pressure from Erdogan not to raise interest rates that would help curb inflation — and with no end to geopolitical tensions on the horizon — the impact of the lira’s fall is likely to become more pronounced, analysts said.

Turkey’s currency drops to record low on Russian missile defense tensions with U.S., CNBC, Oct 08