Turkish lira falls after Erdogan threat to shut Nato bases

Ankara: The Turkish lira slid to its weakest level in almost two months on speculation Turkey was headed for a fresh spat with the US.

The currency depreciated 0.7 per cent to 5.85 per dollar by 5.25pm in Istanbul after President Recep Tayyip Erdogan threatened to close two critical Nato bases. He said on Sunday that would be an option if Washington sanctioned Ankara for buying a Russian missile-defence system.

The two have been at odds over Turkey’s purchase of the S-400 system earlier this year. Nato says it is incompatible with Ankara’s membership of the bloc, and the US Senate Foreign Relations Committee has voted to impose sanctions that could plunge Turkey into renewed economic turmoil.

With inflation accelerating, Turkey’s real yields may not provide much of a buffer if appetite for the nation’s assets sours. The lira has already weakened more than any other emerging-market currency since December 12, when the central bank cut rates a for a fourth straight meeting to 12 per cent, bringing the total reduction since early July to 1,200 basis points.

The currency could fall another 1.5 per cent toward an October-low of 5.938 if there’s “a relatively harsh response from US officials to remarks from President Erdogan,” said Piotr Matys, a London-based strategist at Rabobank.

Government bonds also fell, with the yield on 10-year local-currency notes jumping 16 basis points to 12.52 per cent. The benchmark stock gauge advanced for a third day, led by Akbank TAS — one of the country’s largest listed lenders — as risk appetite across global markets remained buoyant.