Turkey Lira Plunges to Record as Stocks Drop on Political Crisis

December 28, 2013 Leave a comment

Turkey Lira Plunges to Record as Stocks Drop on Political Crisis

The lira plummeted to a record and Turkish stocks slumped the most in the world as a showdown between the government and judicial powers triggered uncertainty over the country’s political stability.The currency weakened as much as 2.3 percent to 2.1764 against the dollar, before trading at 2.1647 as of 12:20 p.m. in Istanbul. The lira slid as much as 3.1 percent versus the euro to a record 3.0034. The Borsa Istanbul 100 Index (XU100) dropped 4 percent, the largest retreat among 94 equity gauges monitored by Bloomberg, to 61,921.61 points, the lowest level since July 2012. Turkey’s two-year bond yield climbed for a second day, rising above 10 percent.

Turkish markets are being roiled by a corruption probe that ensnared Prime Minister Recep Tayyip Erdogan’s cabinet and led to three ministerial resignations and the dismissal of some 500 police chiefs. The selloff worsened after Istanbul Prosecutor Muammer Akkas said in a written statement yesterday that he’d been pulled off an investigation into businessmen and officials for involvement in bribery, rigging tenders and fraud.

“There’s zero predictability,” Cuneyt Paksoy, an investment committee member at Rhea Portfolio Management in Istanbul, said today by phone. “The market is questioning the anchor of political stability, which was the key driver for Turkey’s lift to investment grade.”

Fitch Ratings Ltd. raised Turkey to BBB- in November 2012, its lowest investment grade, and Moody’s Investors Service raised the sovereign to an equivalent Baa3 rating in May.

Bonds Drop

The lira has lost almost 18 percent of its value against the dollar this year, the worst performer in emerging Europe and Africa after South Africa’s rand, according to data compiled by Bloomberg. It’s weakened more than 21 percent versus the euro.

Yields on the nation’s two-year notes rose 43 basis points, or 0.43 percentage point, to 10.16 percent today, the highest level on a closing basis since Aug. 26, according to data compiled by Bloomberg.

The Supreme Board of Judges and Prosecutors said yesterday that a regulation passed last week requiring prosecutors to inform certain superiors of their investigations was unconstitutional.

That board “violated the independence of judiciary” by issuing such a statement, Justice Minister Bekir Bozdag, who was appointed Dec. 25 in a cabinet revision announced by Erdogan, said today, according to NTV television. Turkey’s military said it “in no way wants to be involved in political debates,” according to its website.

Police detained sons of the economy, interior and environment ministers, as well as the chief executive officer of Turkiye Halk Bankasi AS (HALKB) on Dec. 17 in probes into bribery, money laundering, gold smuggling and rigging of government tenders. All three ministers resigned, with Environment and Urban Works Minister Erdogan Bayraktar urging Erdogan to step down, saying the premier approved the projects under question.

Erdogan said the probe amounts to an attempted coup. He told reporters on a return flight from Pakistan on Dec. 24 that his son may be targeted to tighten the political noose around him.

To contact the reporter on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net

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