ISTANBUL, March 20, 2025 (Bloomberg) — The cost of borrowing Turkish liras in the offshore market surged to its highest levels in two years following the detention of Istanbul Mayor Ekrem Imamoglu, a prominent political rival of President Recep Tayyip Erdogan. Imamoglu, who had the potential to challenge Erdogan’s rule, was arrested on corruption charges, sparking protests and raising political tensions across the country.
As a result of the political unrest, the next-day offshore forward implied yields reached 175% by 8:45 a.m. local time on Thursday, sharply rising from just under 38% prior to the detention. The move marked a dramatic spike in borrowing costs for the Turkish currency.
Imamoglu’s arrest highlighted an ongoing and increasingly aggressive campaign by Erdogan to silence political opponents, exacerbating concerns over the stability of Turkey’s political environment. The detention sparked significant market reaction, with assets in Turkey seeing some of the biggest declines globally on the day.
In response to the crisis, Turkish authorities intervened, spending up to $9 billion to support the lira, which showed some signs of stabilization. However, as of 8:39 a.m., the Turkish currency was down by 0.3%, trading at 37.9952 per dollar, after a 3.2% drop the previous day.
The political risk was evident, with foreign investors likely to remain cautious in the short term. Although selling pressure on Turkish equities appeared to ease slightly — with the Borsa Istanbul 30 Index futures dropping 0.4% — the outlook for foreign investment remains uncertain. Goldman Sachs economist Clemens Grafe noted that while foreign investment in Turkey has increased, it remains relatively limited, particularly in long-term positions, due to the elevated political risk.
Despite the lira’s recent volatility, analysts suggest that significant foreign outflows are unlikely to continue at the same pace, as investors expect the current tight monetary policies to persist, keeping the risk of a policy reversal low. However, the political landscape continues to pose a major risk to Turkey’s market stability.
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