Stocks in Turkey fell to their lowest since January 2017 on Monday.
The benchmark is down more than 18% since mid-March, prior to the local elections, which were not particularly kind to AKP. Fortunately (or “unfortunately” if you’re the type of person who likes democracy), Erdogan simply nullified the Istanbul result.
That, combined with pressing concerns about central bank independence and the state of Turkey’s economy more generally, have raised questions about whether we’re about to see a repeat of last year’s lira crisis.
This is highly unfortunate:
Monday would be the eighth consecutive day of losses, not to mention the worst session since March 27, when election jitters were running high and Erdogan was busy orchestrating a brutal crackdown designed to trap investors in the lira.
On Friday, Turkish banks were seen selling dollars in thin Asia FX trading, a laughably desperate move aimed at maximizing the effect of an under-the-table rescue bid.
That followed CBT’s pitifully inept attempt to shore up the flagging lira with another half-hearted “stealth” hike (another suspension of the one-week repo facility). The central bank is of course hopelessly beholden to Erdogan for whom interest rates don’t just represent the cost of money, but rather an existential threat to his rule – a living, breathing nemesis and “the mother and father of all evil“.
There was a ray of hope late Friday, when Bild suggested Ankara had decided against purchasing Russian S-400s, which, if true, would have materially reduced the odds of another bruising diplomatic spat with Washington. The lira rose 3% on Friday at one juncture, only to see the report swiftly denied by Erdogan’s Communication Director, Fahrettin Altun.
Fast forward to Monday and locals were buying dollars again. The lira slid back through 6.
Meanwhile, Reuters reported that Ankara is now all set to change the law in order to allow Erdogan to tap a separate reserve stash (i.e., distinct from the country’s FX reserves which have been the subject of intense scrutiny) to plug budget holes.
“The Turkish central bank has around 40 billion lira in legal reserves. The transfer of this amount to the 2019 central administration budget was seen as suitable”, a source said, adding that “this step aims at improving and strengthening the budget.”
Reuters calls it “the latest unorthodox attempt by President Erdogan’s government to pull Turkey out of recession and steady the lira following last year’s currency crisis.”
This would be the second time this year Erdogan has tapped the central bank for funds.
BlueBay’s Tim Ash was characteristically forlorn. “[This plan suggests] things are worse than first assumed [and] that the fiscal tightening we expected post March 31 local elections is being put off likely beyond the June 23 local election date”, he said Monday.
There’s not much else to add here. It is what it is. And what it is is Erdogan.