Istanbul: The Turkish lira slid 2.5 per cent and stocks tumbled 4 per cent on Monday as the United States and Turkey cut back visa services, signalling a sharp deterioration in relations between the Nato allies.
The dispute hit shares in flag carrier Turkish Airlines, which dropped 8 per cent, while the main BIST 100 stock index dropped 3.94 per cent to below 100,000 points.
The Turkish currency was also hit and stood at 3.7000 against the dollar, retreating from 3.6160 at the close on Friday. It was quoted as having touched a level of 3.9223 overnight.
Last week, a US consulate employee was arrested in Turkey on charges of links to the US-based cleric Fethullah Gulen, blamed for last year’s failed coup. Washington condemned the arrest as baseless.
The US mission in Turkey then suspended all non-immigrant visa services at US diplomatic facilities in the country. The Turkish embassy in Washington followed suit, and made virtually the same statement, only replacing the country names.
“This looks like a really serious situation,” said Blue Bay Asset Management strategist Timothy Ash.
“The [Turkish central bank] CBRT will need to move very quickly to calm market sentiment — if the lira continues to see selling pressure, the CBRT will have to move quickly to hike policy rates in defence of the lira,” he said.
However, there could be political pressure against such a move, given President Recep Tayyip Erdogan’s distaste for high interest rates.
Ash added that the development came at a difficult time in terms of Turkish markets, given the wide current accept deficit and a marked deterioration of the deficit’s financing this year.
Elsewhere in the shares market, Pegasus Airlines dropped 6.8 per cent.
Shares in Halkbank, a former head of which has been charged with evading US sanctions against Iran, fell 5.7 per cent. Halkbank has said all its transactions have fully complied with national and international regulations.
