Turkish lira sinks after Erdogan threatens to expel Western diplomats – .

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Turkish lira sinks after Erdogan threatens to expel Western diplomats – .


The Turkish lira fell to a new all-time low after President Recep Tayyip Erdogan’s decision to expel 10 Western ambassadors added to intense pressure on the currency triggered by concerns about the country’s economy.

The currency fell 2.8% from Friday’s level at 9.85 TL early in the Asian morning on Monday, a time when light trading volumes may exacerbate the magnitude of currency market fluctuations. He cut his losses to around 1.5% during the London trading day.

The latest uproar came after the Turkish leader signaled last week that emissaries from the United States, Germany, France and seven other countries would be forced to leave, increasing the risk of a new crisis in Turkey’s already deeply strained relations with the West. On Saturday, Erdogan appeared to double down on the threat, saying he had ordered them to be declared “persona non grata”.

As of Sunday evening, however, the ambassadors still had not received an official notification from the Turkish authorities. Diplomats expected the issue to be discussed at a Turkish cabinet meeting on Monday afternoon.

The Turkish president’s threat to expel diplomats came after the 10 countries issued a joint statement last week calling for the release of jailed businessman and philanthropist Osman Kavala.

Wolfango Piccoli, co-chair of consulting firm Teneo, said that while it could be difficult for Erdogan to return to such strong public remarks, it was “not taken for granted” that the president would respond to the threat.

He said the countries involved made up half of Turkey’s top 10 trading partners and that the expulsion of diplomats would not only put intense pressure on the lira, but would also trigger “the worst crisis between Turkey and the Western world since. the [ruling AKP party] came to power in 2002 ”.

Emre Peker, analyst at Eurasia Group, predicted that Erdogan would carry out the evictions and warned of the implications for the country’s $ 765 billion economy, which already suffers from 20% annual inflation and a volatile currency.

“These developments would exacerbate Turkey’s economic problems, likely fueling the dollarization trend [of Turkish residents saving in foreign currency], potentially fueling a disorderly currency depreciation, ”he wrote in a note to clients. “Given Erdogan’s insistence on pursuing unorthodox monetary policies, Ankara would find it difficult to respond appropriately to growing economic pressures, for example by raising rates, increasing the risk of a more serious market disruption. “

The pound has already lost nearly a quarter of its value since the start of 2021 as Erdogan pressured the central bank to step up rate cuts despite rising inflation.

The sharp depreciation has raised concerns among investors about the risk of a balance of payments crisis given the country’s large external debt and low foreign exchange reserves.

In an update released on Friday, the S&P rating agency said that although it has improved somewhat over the past year, Turkey’s balance of payments position remains “weak”.

The central bank’s “usable” reserves – after excluding borrowed money – amount to just $ 34 billion. This compares to the $ 170 billion in foreign debt that needs to be renewed over the next 12 months.

These risks were partially offset, he said, by Turkey’s strong fiscal position relative to many other emerging markets.

Additional reporting by Adam Samson in London

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