The arrest of the mayor of Istanbul Ekrem i̇mamoğlu has triggered significant turbulence in Turkish financial markets, highlighting the structural fragility of the country’s economy. The Turkish lira suffered a depreciation of 12%, subsequently contained at 3% thanks to the intervention of the central bank. COFACE Analyze the impact of the arrest of Ekrem Imamoglu stressing that the episode “raises questions about the country’s political and economic stability, in a context already characterized by inflation eraised and dependence on foreign capital “.
Türkiye, political shock shakes the markets: the central bank intervenes
The detention and subsequent arrest of Ekrem İMamamu, mayor of Istanbul and the main political rival of Erdogan president, have provocator an immediate reaction of the markets financial. The Credit Default Swap At 5 years of Türkiye it has increased Dat 250 to 325 points, riFlexing the greater perception of the risk, although it remains well below the peak of 900 points recorded in mid 2022. The Central Bank of the Republic of Turkey reacted promptly convening an extraordinary meeting on March 20 and announcing measures to stabilize the currency: the increase in the oversized loan rate from 44% to 46%, the suspension of the weekly repo auctions and the issue of bonds at 90 days to reduce liquidity to reduce liquidity to reduce liquidity in lire.
Political risk and economic fragility: dangerous mix
The demonstrations of the square burst following the arrest of the mayor highlight the growing social tension in the country, fueled by the deterioration of the economic conditions.
Seltem Iyigun, eConomista COFACE for Turkey comments: “The increase inthe political risk It arrives in a delicate moment for the Turkish economy, which is trying to consolidate the disinflation path started with the return to Orthodox economic policies in the middle of 2023. The reaction of the markets demonstrates how political uncertainty can quickly translate into pressure on the currency and compromise the economic results achieved. The affluent of foreign capital, significantly increased in recent months, could stop, putting at risk the stability of the lira and the process of reducing inflation. “
Persistent vulnerability: currency reserves and inflation
Despite the strengthening of the currency reserves, climbed to 171 billion of USD By covering almost 70% of the short -term debt, their adequacy remains a point of attention. It is estimated that the central bank has used around 20 billion USD to support the lira in the last week. RA inflationPPRESENTA Another structural vulnerability. If that of the goods fell from 68% to 30% thanks to the stabilization of the currency, the inflation of the services remains high (60%). A further depreciation of the lira could force the central bank to maintain high interest rates for a prolonged period, further burning the private sector already under pressure.
Ernesto de Martinis, CEO Mediterranean Region & Africa Coface, highlights: “What is happening in the last few days in Turkey perfectly exemplifies how political risks can amplify economic vulnerability. The recent episode shows that, despite the progress made in the last year, structural fragility remain which can quickly emerge in moments of uncertainty. The government’s ability to maintain the trust of the investors will be crucial to avoid a high inflation cycle and low cycle growth.”
“In a global context already characterized by geopolitical uncertainties, we monitor the evolution of the situation in Turkey with great attention, a reference market for many Italian companies. Our commitment is to provide our customers on time analysis and effective tools to manage commercial risks in complex and volatile markets, allowing them to make informed decisions in a delicate phase.” Pietro Vargiu, Country Manager Coface Italia
