Turkey’s ambitious efforts to stabilize its economy faced a major setback following the detention of Ekrem Imamoglu, the popular mayor of Istanbul and a potential presidential challenger to President Erdogan.
For the past two years, Turkey’s bond and stock markets had been a haven for investors, buoyed by sky-high interest rates designed to tame rampant inflation.
The country’s currency, pegged at a stable rate, had gained traction, with international money managers betting on a continued recovery.
However, the situation unraveled dramatically on Wednesday when Erdogan moved against Imamoglu, whose detention followed months of crackdowns on opposition figures.
The move rattled markets, sending the Turkish lira into its steepest plunge since the 2023 currency crisis, triggering alarms about the nation’s stability.
The political upheaval jeopardizes investor confidence in Turkey’s economic recovery, with concerns about future market volatility.
Analysts warn that the lira could once again face a mass exodus of domestic savings, mirroring past crises.
Despite this turmoil, some analysts, including those at JPMorgan, still recommend Turkish bonds, citing a continued preference for the country’s high yields.
However, they expect slower progress on inflation control, with smaller interest rate cuts likely in the near future.
Turkey’s markets, once a crowded trade for investors, now face the challenge of restoring trust.
The central bank has been forced to sell billions of dollars in reserves to stabilize the currency, but with heightened political risks, the future remains uncertain.
