Turkish financial markets have come under renewed pressure this month, underlining the risks posed by the country’s low level of foreign exchange reserves and large external financing needs. The threat of EU sanctions seems to have been the proximate cause for the recent turbulence, causing capital flows to slow. And the central bank no longer seems able to defend the currency at 6.85/$ – where it had been since June. Further falls in the currency lie in store and there’s a growing risk that these become disorderly, akin to what happened in 2018. That would probably come alongside tighter financial conditions and a halt to the economic recovery underway – which is already proving to be one of the weakest in the region.
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