 "Protests against Imamoglu's arrest are pinching Turkey's economy hard")
Mass protests across Turkey sparked by the arrest of Istanbul’s Mayor, Ekrem Imamoglu, are taking a toll on the country’s economy, reviving long-standing investor concerns about political stability and economic governance under President Recep Tayyip Erdoğan.
Imamoglu, widely seen as Erdoğan’s most credible political rival, was detained last Wednesday (March 19) on corruption charges he claims are politically motivated.
Imamoglu’s popularity surged after his 2019 mayoral victory dealt a major blow to Erdoğan’s ruling AK Party in Turkey’s largest city. His detention is widely viewed as a pre-emptive move to sideline him ahead of future national elections.
The government has denied any political interference, but the timing and scope of the arrest have triggered a wave of unrest, with tens of thousands taking to the streets despite bans on public gatherings.
Turkish currency’s value tanks
The backlash has rattled markets. The Turkish lira, which hit a record low of 42 against the US dollar on Wednesday, recovered slightly to trade at 37.99– still down 6.7 per cent since the beginning of the year.
The Central Bank of the Republic of Turkey (CBRT) intervened aggressively to stem the currency’s decline, reportedly selling as much as $25 billion in reserves over three days– nearly 40 per cent of net reserves built up since mid-2023.
Sovereign bond rates slip
The CBRT also suspended its one-week repo auction and hiked the overnight lending rate to 46 per cent, an effective tightening of 350 to 400 basis points.
Sovereign dollar bonds extended their slide for a third consecutive session, with longer-dated issues losing as much as 2 cents on the dollar. For the week, losses are on track to exceed 3 cents – the worst performance since January 2024.
Foreign investors spooked
“It’s very difficult to attract longer-term strategic foreign investors to Turkey in this kind of environment where even locals don’t have a full understanding of what’s happening,” said Emre Akcakmak, portfolio advisor at East Capital.
The situation reminds investors of previous flashpoints in Turkish politics. Erdoğan’s sweeping post-coup crackdown in 2016 triggered a steep lira sell-off and investor exodus, while his 2024 re-election – fuelled by heavy pre-election spending – contributed to inflation peaking above 80 per cent.
Impact Shorts
More ShortsTuesday will see Turkish Finance Minister Mehmet Simsek and Central Bank Governor Fatih Karahan attempt to reassure international investors in a teleconference hosted by Citigroup and Deutsche Bank. The Treasury said the 1300 GMT call will provide an update on recent economic developments in the wake of the market turmoil.
With inputs from agencies
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