Economic turmoil

Havva Gümüşkaya

The operation targeting 106 individuals, including İstanbul Metropolitan Municipality (İBB) Mayor Ekrem İmamoğlu, has had a profound impact not only on politics but also on the economy. The government’s disregard for the rule of law and democracy has shaken both citizens and financial markets.

Following İmamoğlu’s detention, the currency market experienced a sharp surge. The dollar exceeded 41 TL, while the euro surpassed 44 TL, breaking new records. As losses mounted, the Central Bank intervened by selling foreign currency to stabilize the markets.

The inflation-control program designed by Treasury and Finance Minister Mehmet Şimşek, which was based on the real appreciation of the Turkish lira, effectively collapsed. The dollar’s daily increase exceeded 11%, while the euro surged by 11.5%. Since the beginning of the year, the dollar has risen by 16.16% against the lira, while the euro has increased by 22.30%.

Several private banks widened the bid-ask spread on the dollar exchange rate to 3-4 TL, marking the highest exchange rate margin recorded to date.

Amid the market fluctuations, Treasury and Finance Minister Mehmet Şimşek issued a statement, saying: "Everything necessary is being done to ensure the healthy functioning of the markets. Our economic program continues with determination."

THE SPELL IS BROKEN

Following the rapid depreciation of the Turkish lira, the Central Bank’s daily foreign currency sales are estimated to have reached a record level. Bankers speaking to Reuters suggested that currency sales may have hit $10 billion, while traders reported a massive supply of foreign currency through state-owned banks.

Financial Markets Expert İris Cibre warned that total sales could reach $20 billion, stating: "All economic policies implemented since the election have been thrown in the trash. The idea was to reassure foreign and domestic investors, stabilize the exchange rate, curb inflation with high interest rates, and let the rest follow. Turkish lira has returned to volatility. Even if the Central Bank closes the exchange rate at 36 today, it’s pointless. Domestic demand is also evident. This is a disaster for citizens and small businesses (SMEs), who will bear the real burden of this failure."

Speaking to BirGün, Cibre assessed the economic consequences of the operation, explaining: "Between 2024 and 2025, Turkey had seen inflows into bonds and carry trade. Foreign investors had also gradually started investing in equities. But today, we woke up to a shock. There is now a rapid capital outflow from Turkey. Previously, foreign investors were selling dollars and converting to lira, taking an unhedged position. Exchange rate risk was a major concern. For a long time, there had been no significant volatility, which encouraged investment. Now, currency risk has resurfaced. We are likely to see a rapid exit in portfolio investments. There had not been significant inflows in direct investments anyway. Under these circumstances, inflation expectations will also deteriorate, and individual demand for foreign currency will increase. In the coming months, we could see a worsening inflation outlook”

RISK PREMIUM RISES

Following the detention orders, Turkey’s Credit Default Swap (CDS) surged. Turkey’s 5-year CDS climbed to 279 basis points, marking its highest level since October 2024. Additionally, gold prices hit a new record, with gram gold surpassing 4,000 TL for the first time.

STOCK MARKET PLUMMETS

The BIST 100 index opened the day with a 6.87% drop, starting at 10,060.48 points. As losses exceeded 5%, a circuit breaker was triggered in the morning session. Trading resumed at 10:30 AM, but the decline continued throughout the day. By 2:10 PM, losses surpassed 7%, leading to a second circuit breaker. At 3:10 PM, the index fell below 10,000 points, with total losses reaching 8%.

Note: This article is translated from the original Turkish version titled Ekonomide sarsıntı, published in BirGün newspaper on March 20, 2025.