(Bloomberg) — The Turkish lira is on course for the largest weekly drop in nearly two years after the detention of a key opposition politician rattled investors.
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The currency was trading 0.5% lower at 38 per dollar at 9:05 a.m. in Istanbul on Friday, extending its losses over the past five days to 3.7% — its worst performance since June 2023.
The rout began on Wednesday after Turkish authorities detained Istanbul Mayor Ekrem Imamoglu, President Recep Tayyip Erdogan’s most powerful rival. Lenders sold as much as $9 billion and the central bank delivered a shock interest-rate hike to defend the currency.
The monetary authority’s decision was aimed at containing outflows from lira deposits, Goldman Sachs Group Inc. economists Clemens Grafe and Basak Edizgil said in a report.
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Thursday’s 200-basis-point hike to Turkey’s overnight lending rate will allow policymakers to raise the average cost of funding they provide to commercial lenders and prevent a weaker lira from stoking inflation. The bank also said it would suspend lending at its lower, benchmark rate of one-week repo — which stands at 42.5% — for an unspecified period.
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The monetary authority’s decision brought relative stability to the offshore lira market, where the cost of borrowing in the Turkish currency eased to 54% on Friday morning after rising to 175% earlier in the week.
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The Borsa Istanbul 100 Index closed 0.5% lower on Thursday. A day earlier, stocks had slumped 8.7%, erasing about $10 billion from the market value of Turkish equities. The yield on lira-denominated, 10-year government bonds stands at 31.31%, 338 basis points higher on the week.
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