Turkey’s lira set for record loss in century

Turkey’s lira is headed for its longest stretch of weekly losses in this century amid political turmoil ahead of November elections and a worsening security situation. 

The currency sank to a record low of 3.06 against the US dollar on Thursday, capping a weekly loss of 1.5%. It is languishing in its eighth week of slumps as the second worst performer among 24 emerging economies this year.

Uncertainty over the US Federal Reserve’s plans to raise interest rates has led to a record flight of about $7 billion in foreign investments in Turkey so far this year.

Market observers believe investor concerns are likely to increase as tensions in mainly Kurdish-populated regions are escalating. Prime Minister Ahmet Davutoglu has hinted at a major ground offensive in northern Iraq in pursuit of PKK militants.

Turkey’s worries are compounded by political uncertainty ahead of November 1 elections, with the ruling AK party expected to struggle again to win enough votes to form a government.

Finance Minister Mehmet Simsek didn’t mince his words in citing potential damage to public finances and further pressure on budget and current account deficits.

“The most important risk to the Turkish economy is long-term political uncertainty. It would be a recipe for budget and current account deficits,” Simsek said at a conference in Istanbul.

He said Turkey needs to restart structural reforms to limit negative effects on emerging markets caused by lower commodity prices and a strong US dollar.

The economy is also on the edge over US interest plans. Turkey’s central bank has announced a series of measures designed to protect the economy from the potentially negative impact of higher US interest rates.

It has increased interest payments on lenders’ lira reserves but those measures have not stopped foreign investors from pulling a record $6.88 billion from Turkish stocks and bonds so far this year.

Fitch was to review its BBB-minus rating on Turkey rating amid expectations it may cut the outlook to negative.

The country, however, took heart from a rare piece of good news after official statistics showed Turkey’s economy grew 3.8 percent in the second quarter, beating expectations.