The Turkish lira has hit a historic low against the US dollar. The USD/TRY exchange rate on the international Forex market surged by 11.99% at the start of trading on March 19, reaching 41.1 lira per dollar. This marks the first time the dollar has exceeded 41 lira.
Turkey's assets are declining amid the police detention of President Recep Tayyip Erdoğan's rival, Bloomberg reports.
Shares of Turkish companies also dropped, while the yield on 10-year government bonds rose to its highest level this year. The Borsa Istanbul 100 (BIST 100) index fell by 6.9%, triggering a halt in trading. After trading resumed, the decline narrowed, with the index down 5.5% as of 11:32 AM Moscow time. The lira's depreciation also eased, with the exchange rate improving to 39.25 lira per dollar.
Political events typically impact Turkey's stock market, as it is dominated by local investors who are sensitive to such developments. Turkish investors hold approximately 62.5% of the country's stocks.
Istanbul Mayor Ekrem İmamoğlu was detained at his home on Wednesday, March 19, according to CNNTurk. His arrest came a day after authorities annulled his university diploma, a move that could prevent him from running in the next presidential election. İmamoğlu, a leader of the opposition Republican People's Party (CHP), is considered Erdoğan's main opponent. CHP, the second-largest party in Turkey's parliament, holds 128 out of 600 seats.
Musavat Dervişoğlu, leader of the nationalist İYİ Party (Good Party), issued a strong statement:
"This is a coup. As of today, the right to vote and be elected, freedom, democracy, law, and constitutional rights in Turkey have been suspended. If Erdoğan runs again, the entire opposition must protest the elections. We will stand tall, like Atatürk."
İmamoğlu has led Istanbul since 2019. Several investigations against him were launched earlier this year, including one related to "influencing an investigation, an expert, or a witness," after he claimed that "a bought expert" had fabricated reports against CHP and its representatives in local government. Another case involves his comments about Istanbul's prosecutor general and his family.
Amid the developments, Istanbul authorities banned all mass gatherings and rallies for four days, Reuters reports. Additionally, some social media platforms and messaging apps, including X (formerly Twitter, blocked in Russia), WhatsApp, and TikTok, were temporarily restricted in Turkey, according to Bloomberg.
Municipal elections in Turkey last year saw the opposition defeating Erdoğan's candidates in Ankara and Istanbul. Erdoğan vowed to regain control over Istanbul, Turkey's economic and cultural hub.
The next presidential election is scheduled for 2028. Imamoğlu was set to be nominated as CHP's presidential candidate on Sunday, March 23.
"This is a system shock," said Nick Rees, head of research at Monex Europe, commenting on the lira's collapse. He noted that Turkey had recently shown signs of greater stability, both economically and politically. Rees added that the recent call by Kurdistan Workers' Party (PKK) leader Abdullah Öcalan to lay down arms indicated a move toward de-escalation, but the arrests of opposition figures contradict this trend. The market had grown more confident, but now sentiment has shifted dramatically, leading traders to reassess Turkey's political risk premium and triggering a sharp sell-off of the lira.
At its last meeting in March, Turkey's central bank cut interest rates for the third consecutive time, bringing them down to 42.5%. This came after eight meetings where the rate was held at 50% to combat high inflation. The next central bank meeting is scheduled for April 17.