Turkish lira falls over 2% as NATO spat adds to concerns on economy

Turkey’s lira slid for the ninth-straight day in a sell-off sparked by surging inflation and the spectre of a crisis within NATO over President Recep Tayyip Erdoğan’s objections to the membership of Finland and Sweden.

The lira, the world’s third-worst performing currency this year, fell as much as 2.2 percent to 15.889 per dollar, the lowest level since December and extending losses since Dec. 31 to 16 percent. It was trading down 2.2 percent at 15.883 per dollar as of 12:33 p.m. local time in Istanbul.

“Feels like major Turkey-Western crisis looming over NATO bid by Sweden and Finland. RTE could use it as a rallying call for early elections,” said Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London, in comments on Twitter. “Biden might need to get in a plane to Turkey soon to sort this out and stop the crisis escalating.”

On Monday, Erdoğan doubled down on his objections to Sweden and Finland’s membership of NATO, first expressed on Friday. Both countries failed to take a clear stand against terrorist groups and Turkey cannot say “yes” to countries who impose weapons embargoes on Turkey, he said at a televised news conference in Ankara.

Turkey says Sweden and Finland provide shelter to members of the Kurdistan Workers’ Party (PKK), which has fought a war for autonomy from Turkey at the cost of 40,000 lives, most of them Kurdish. They deny the charges. The two countries also harbour members of a religious group blamed for a coup attempt in Turkey in 2016, Erdoğan’s government says.

Some analysts say Erdoğan may be using Sweden and Finland’s application to gain concessions from the United State over arms purchases or to win more financing from the European Union for its hosting of millions of refugees from Syria.

Erdoğan is due to hold presidential and parliamentary elections next June at the latest. His approval rating has been in decline due to economic troubles in the country -- the lira slumped by 44 percent against the dollar last year. Annual inflation surged to 70 percent last month, pummelling living standards. The country's current account deficit is also widening markedly due to surging energy prices.

Turkey’s state-run banks have reduced the amount of sales of dollars used to prop up the lira, Bloomberg reported on Tuesday.  

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