The Turkish lira has fallen by roughly 25% over the past few days as the fallout from U.S. sanctions and the policies of Turkish President Erdogan have roiled markets. The Turkish Central Bank has stepped in to try to bring stability to the currency; however, it will be a number of days before we see if the support ends the slide.
The currency crisis in Turkey has been brewing for several years and has similarities to past emerging market currency crises. It will take a series of fundamental changes in the economy to alter its direction. Ultimately, the International Monetary Fund may need to intervene in order to bring stability to the situation.
I don’t see this crisis impacting global fundamentals; nevertheless, it does keep markets alert to the risks that can increase volatility in domestic equity and credit markets.
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