Lira Heads for Steepest Drop in Almost 10 Years in Week of Drama

(Bloomberg) -- Investors in Turkish assets will be glad the week is coming to an end.

The Turkish lira, which touched a record low against the dollar Thursday, headed for its biggest weekly slump in almost a decade, and was the worst-performing global currency. The benchmark Borsa Istanbul 100 Index fell the most since a foiled coup in 2016, with the selloff dragging price-to-estimated earnings valuations to the lowest in more than nine years. The 10-year government bond yield surged almost 100 basis points this week.

Turkish assets came under pressure this week after Turkish President Recep Tayyip Erdogan appointed his son-in-law Berat Albayrak as the country’s economy chief. Erdogan replaced market-friendly names, stoking unease among investors and leading to an erosion in confidence in the country’s ability to avoid a potential hard landing in the economy.

The speculation over the central bank’s independence and decision-making mechanism was “unacceptable,” Turkey’s new Treasury and Finance Minister Albayrak said on Thursday, state-run Anadolu Agency reported. The policy maker would do whatever market conditions require, he was cited as saying.

While Albayrak made constructive comments aimed at reassuring investors, “confidence among investors is still low due to prevailing concerns about unorthodox economic policies,” said Piotr Matys, an emerging-market strategist at Rabobank. “Should Mr Albayrak deliver on his fiscal pledges and the pace of economic reforms accelerates, his credibility among foreign investors will increase accordingly.”

Turkey’s lira was little changed at 4.855 per dollar as of 11:58 a.m. in Istanbul. The currency has weakened almost 6 percent this week, the most since October 2008. The BIST 100 Index rose 0.9 percent, still down more than 8 percent since July 6. The yield on 10-year bonds fell 19 basis points to 18.36 percent, paring its increase this week to 93 basis points.

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