Turbulent times for the Turkish lira

Synopsis

Turkey's lira is currently the second-worst-performing currency of the year, having actually fallen 30%, with a 10% drop since the start of August. Investors continue to express concerns about the Turkish economy, particularly regarding President Erdogan's increasingly authoritarian regime following his return to power in June. The appointment of his son-in-law as treasury and finance minister raises further doubts about the independence of the central bank, which has refrained from raising interest rates despite inflation at 15% and a current account deficit of 5.6% of GDP. On July 24, the central bank decided not to raise rates, leading to investor skepticism. A new economic model is set to be announced this coming Friday, which investors are eagerly awaiting. Additionally, Turkey faces tensions with the United States over the arrest of an American pastor, resulting in US sanctions against two Turkish government ministers. This geopolitical strain contributes to investor hesitance towards Turkish assets.