Turkish Lira Plunges Amid Political Unrest

Turkey's lira fell sharply, hitting a new low after President Erdogan's main political rival, Ekrem Imamoglu, was detained. This move spurred a plunge in stocks and bonds, triggering fears of economic instability. Analysts worry about its impact on Turkey's monetary policy and potential foreign investor outflows.

Turkey's lira plummeted up to 12.7%, reaching a new record low of 42 to the dollar on Wednesday. This depreciation followed the arrest of President Tayyip Erdogan's chief political competitor, Ekrem Imamoglu, the mayor of Istanbul. The opposition labeled this act a 'coup attempt,' as it comes amid an intensive crackdown on political adversaries, widely criticized for being politically motivated.

Despite the lira recovering to 38.90 against the dollar by mid-morning, this fall marks its most considerable decline since July 2023. Meanwhile, Turkey's international bonds experienced significant pressure, with longer maturities hit hardest. Observers fear these financial upheavals could disrupt Turkey's monetary policy, especially as the central bank embarked on an easing cycle in December.

The stock market also suffered, with Turkish blue-chip stocks dropping nearly 6% and banking sector indices declining by 9.67%. Investors reeled as trading was temporarily halted due to market-wide declines. The political tumult has heightened concerns about foreign investor withdrawal, further straining Turkey's economic prospects.

(With inputs from agencies.)