The Turkish currency has come under pressure in recent days, weakening against the US dollar off the back of the political election fallout and rising tensions with US President Donald Trump. This week saw the lira tumble to a six-month low against the American greenback as it fell to levels not seen since October 2018. As of 2.01pm UK time, TRY is trading at 5.8066. Turkey last week unveiled a reform package to revive the struggling economy, which is still in recovery mode after falling into crisis last year.
Turkish Finance Minister Berat Albayrak pledged a $5 billion boost into the banks to help them cope with an expected rise in defaults following the country’s slump into recession.
Mr Albayrak also said the government’s new tax structure will decrease exemptions and gradually lower corporate tax, while combating the unrecorded economy and taxing high income more fairly.
But Larry Brainard, chief emerging markets economist at TS Lombard, said the government is still lacking a viable strategy to promote financial stabilisation.
He said: “[Its] new plan … is unlikely to make progress in cleaning up banks’ balance sheets.
“This suggests a prolonged financial and economic squeeze lies ahead.”
His sentiment was echoed by S&P’s top EMEA sovereign analyst, Frank Gill, who questioned if the lira is still a currency worth investing in.
He said: “In our opinion the reform package did not answer that question.”
On Friday, ratings agency Moody’s said the reform package provided little detail and sketchy on a timetable for helping restore the economy.
TRY has been squeezed in recent days after President Recep Tayyip Erdogan called for the Istanbul election to be re-run after his AK Party were defeated by a narrow margin to the main opposition Republican People’s Party (CHP).
The loss of Istanbul is a huge one for President Erdogan, who launched his political career in Istanbul as mayor in the 1990s.
His AK Party held power in Turkey’s commercial hub for 25 years up until the latest election.
Meanwhile, the lira was also pushed down over Turkey’s planned purchase of a Russian air defence missile system.
The plan to buy the system had fuelled tensions between the NATO allies, and the United States said Turkey could face sanctions over the issue.