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Turkey's lira is the second worst-performing currency of the year. It's fallen 30%. It's actually fallen 10% since the start of August as investors continue to worry about various aspects about the Turkish economy and its relations with the US. It's being worried about the increasingly authoritarian regime of President Erdogan, who was returned to power in an election in June, after which he decided to consolidate power by appointing his son-in-law as treasury and finance minister.
Investors want to see interest rates rise in Turkey. This is to combat inflation running at 15% and a current account deficit standing at 5.6% of GDP. But the central bank most of the year has been very cautious about it, partly because President Erdogan is averse to raising interest rates. And that's led investors to question whether the central bank is truly independent.
It decided not to raise rates on July the 24th. And what investors want to see is some kind of response from the treasury and finance minister. Now it will announce a new economic model this coming Friday. So investors will hang fire until it's heard that.
At the same time, Turkey's embroiled in a dispute with the United States over the arrest of an American pastor on terrorism charges in Turkey. And that's led to reprisals by the US involving sanctions against two government ministers.
Now at the moment investors are very nervous about sanctions. There have been sanctions imposed by the US against Iran. There have just been announced further sanctions against Russia. And it feels like that investors are seeing Turkey as part of this general US assault on enemies - or in Turkey's case, actually, a Nato ally - to get its own way. So, until there is a breakthrough in that respect and until there is movement from the central bank, investors are going to stay away from Turkish assets.