Turkish lira hit 7-month low, stocks fell %2 due to political uncertainty
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Turkey's currency ans stocks fell sharply on Friday to its weakest level since September 11, 2007, as local investors joined the foreign funds in selling lira amid increased political uncertainty. Lira fell below 1.30 against dollar, weakening more than 2 percent. Istanbul benchmark stock exchange lost 2 percent in value and ended below the 40,000 points mark. (UPDATED)
Turkey's main stock market index fell 2.8 percent, bucking a rising trend in emerging markets and taking its loss for the year to 29 percent. The lira closed on the interbank market at 1.2945 to the dollar, 2.2 percent weaker on the day, while bonds also weakened. In after-hours trade the lira weakened beyond the psychologically important level of 1.30.
Turkey has been among the hardest hit markets when the global turmoil intensifies due to its economic vulnerabilities such as high current account deficit.    Â
Local investors huge foreign currency deposits had limited fell in lira during the periods of global sell-offs. However traders say locals started buying dollars due to increase in political tension.   Â
A senior FX trader told hurriyet.com.tr both local and foreign investors started closing their positions ahead of the Constitutional Court's decision due Monday regarding to the AKP case. Reuters reported estimated 5 billion dollars of foreign money had left the money market since Tuesday.
Political tension has been high since a leftist and anti-AKP columnist, a party leader and a former rector were taken into custody on Friday with suspected links to an illegal gang which was accused of paving the way to a military coup following Turkey's chief prosecutor filed a lawsuit against the governing AKP demanding its closure on March 14. Observers say recent developments embark a new episode in the secularists' and Islamist groups' struggle.
The rapporteur appointed for the lawsuit for the closure of Turkey's ruling party AKP concluded his preliminary assessment on the indictment and it was circulated among the members of the Constitutional Court, which is expected to make its preliminary assessment on the case on Monday. Â
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CURRENT ACCOUNT DEFICIT
Turkey's large current account deficit, which is expected to hit 42 billion dollars in 2008, seen as the biggest risk factor of the economy. Turkish markets are among the hardest hit when global risk appetite reduces significantly.
IMF warned on Friday the external risks could cause a disorderly correction in Turkish financial markets.
"There is still the risk that credit losses in mature financial systems may turn out to be much larger than currently envisaged. In such a case, it would be natural for emerging markets to see reduced availability of external financing," Lorenzo Giorgianni, IMF's Turkey desk chief, told Fortune Turkey magazine's April issue.     Â
The reduction of external financing capabilities could "force a disorderly adjustment" in countries with a high current account deficit and large external financing needs like Turkey, he added.  Â