Turkish lira suffers largest weekly drop since 2023

The Turkish lira is experiencing its biggest weekly drop in nearly two years. This decline comes as stocks also fall sharply amid rising political tensions in the country. An emergency interest-rate increase by the central bank failed to stabilize the currency. The situation worsened when Istanbul Mayor Ekrem Imamoglu, a key opposition figure, was detained. This event unsettled investors, causing a significant market downturn on Wednesday. Currently, the lira is trading at 37.9482 per dollar, down 3.7% over the week, marking its worst performance since June 2023. The Turkish stock market has also suffered, with the Borsa Istanbul 100 Index decreasing by 7.8%. This decline has wiped out about $30 billion in value. Banking stocks were particularly affected, hitting their lowest levels since 2001. The yield on 10-year government bonds increased to 33.38%. In response to the turmoil, lenders sold around $9 billion to reduce currency volatility. The central bank raised the overnight interest rate by 200 basis points in an attempt to control the situation. They also plan to issue a 91-day bill to absorb excess lira in the market. Protests have erupted since Imamoglu's detention, and more demonstrations are expected. Analysts suggest that local political risks are driving market instability. The central bank's recent actions, including suspending certain lending rates, aim to keep inflation in check and support the lira. Concerns about the lira's future are growing, as borrowing costs in international markets have surged. Investors are now watching closely for developments, particularly any escalation in protests over the weekend.