The Turkish lira continues falling. To the crisis are adding the USA sanctions on some Turkish officials, and they as well are creating problems to the country that has already its own issues.
Two government ministers are sanctioned, and this creates additional pressure to the country. Turkey is still under the threat of further sanctions.
The Turkish lira has dropped for a quarter against the USD in 2018. Turkey is trying to handle inflation rates in the country. As well, the external and internal debts of the country aren`t very promising. Investors meanwhile are bothered by another issue: the independence of the central bank of the country.
On Thursday, lira has dropped for 1,7%, for about 5 liras against the USD. The record law was achieved in Wednesday, when the USA announced that they would impose sanctions on the country because a U.S. pastor was detained in Turkey.
The USA officials declared, they would recommend the American companies not to get involved in any kind of business with Turkey. Especially it is regarding the ministers of justice and interior, because they refused to free Andrew Brunson, an American pastor. He is accused to have helped the coup against the active president of the country, Tayyip Erdogan. Mr. Brunson denies the reasons for the detention, and the USA officials insist, they were politically motivated. If the pastor gets convicted, he will have to spend 35 years in a Turkish prison.
The sanctions against two Turkish ministers have caused concerns in the market, and investors and businessmen expect, that more measures are going to follow. As one of the leading bank`s representative said, “investors don’t like political escalations.”
The ministers are however not too much worried about their sanctions. As the Justice Minister Abdulhamit Gül shares in his tweet, he has no property outside of the country and he has no other dream but to live and to die in his country. Do the sanctions really bother him?
The interior minister isn’t so loyal, however. Süleyman Soylu has already announced, that they would continue to fight for the return of an Islamic cleric Fethullah Gülen, who is based in Pennsylvania and who is suspected in the inciting of the coup attempt in 2016. Moreover, as Mr. Minister claims, they have in Pennsylvania a movement, called FETO, which is listed in the list of terrorist organizations in Turkey. So, the minister insists, that the cleric will not stay in the USA, the country should and will have him back.
The lira is meanwhile continuing dropping not only against the US dollar, but as well against other currencies, which have been hurt by the dollar growth and the increased interest rates.
This is not the only factor that puts the market under the pressure. One more negative factor is the escalating disputes between the USA and China, and the imposed sanctions on Chinese products form the side of the USA. Sand this, in turn, influences other currencies, such as Russian ruble and South African rand, and cause their drop against the dollar.
Turkey is more vulnerable to the US dollar than other mentioned countries. It is due to its huge external debt. Even though the International Monetary Fund estimates, that the GDP is going to grow for 53% till the end of 2017, which is the highest value among the emerging markets, the situation in the country is complicated.
About one third of loans for the Turkish companies were issued in foreign currency. And the weaker the lira is, the more complicated it is to pay those debts.
Investors are concerned mainly about the fact that even though there are clear political interferences, the government of the country denies it. The president of the country believes that high rates are “the mother and father of all evils”, he has a clear intention to keep the rates as low as possible, to support economy growth and stability. The specialists however insist, that an increase of the interest rate would have a positive effect on lira, but the inflation would grow, as well. Speaking about the inflation rates, they aren`t low anyway. For example, in June, the inflation rate was 15.4%, which is the highest rate during the last 15 years. The next inflation rate data will be released soon, and it is expected, that this release would cause one more round of selling of national currency.
So, lira is going, most likely, to continue falling, at least, macroeconomic factors for it are very strong. Inflation is going to rise as well, and that should happen in the nearest future.