Turkish lira sinks amid Erdogan fury with allies

The Turkish lira has hit a record low of 8.15 against the dollar amid investor anxiety about the Turkish economy, hit by coronavirus and friction with Nato allies.

President Recep Tayyip Erdogan has riled France and the US among others.

Analysts attribute the weakening to concern about Turkish inflation – 11.7% last month – and the central bank’s refusal to raise its key interest rate.

A rate rise could dampen inflation and encourage investors to buy lira.

President Erdogan’s regional muscle-flexing – in Libya, Syria, around Cyprus and in the Caucasus – has disconcerted investors, market analysts say.

“The rising geopolitical tensions with the USA and EU are new sources of pressure weakening the lira,” said a Turkish foreign exchange trader quoted by Reuters news agency.

Piotr Matys, an analyst at Rabobank, said there were concerns that a win for US presidential candidate Joe Biden could mean “severe sanctions on Turkey for purchasing the Russian S-400 [anti-aircraft] defence system” and “the market is also concerned about [the] rapidly deteriorating relationship between Turkey and France”.

The lira has lost 26% of its value this year and the Turkish authorities are reported to have spent about $134bn (£103bn) in the past 18 months propping up the currency.

Missile controversy

On 23 October President Erdogan confirmed that Turkey had tested the controversial S-400 missile system. Then on Sunday he hit back at US criticism over the arms deal with Russia, saying: “You do not know who you are playing with. Go ahead with your sanctions.”

The US state department has warned of “potential serious consequences for our security relationship if Turkey activates the system”.