Indian rupee drops to all-time low against dollar as Turkish crisis hits emerging markets

Investors are trying to work out how badly European banks might be affected

Caitlin Morrison
Monday 13 August 2018 07:30 BST
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Erdogan says Turkish economy will grow, despite 'attacks' on lira

The Indian currency has dropped to an all-time low against the dollar, while the New Zealand dollar has slumped to two-year lows as emerging markets feel the effects of the crisis in Turkey.

Investors have instead moved towards safe haven currencies such as the yen, which surged to a six-week high, and the Swiss franc, which jumped close to a one-year high against the euro.

The Indian central bank reportedly intervened to prevent a sharp drop in the rupee’s value, however, it did little to stem the decline, and the currency fell to 69.62 rupees per dollar.

The New Zealand dollar has also felt the effects of the Turkish crisis, dropping below $0.66 for the first time in two years over the weekend.

Meanwhile, the euro fell against the dollar to $1.14, as investors try to work out how badly European banks might be affected by the problems in Turkey, with the Spanish, French, and Italian in particular all hugely exposed to Turkish debt.

The Turkish lira has dropped to a record low against the dollar and on Monday a dollar bought just under 6.65 lira.

In January, a dollar bought 3.7 units of the Turkish currency, meaning it has lost around 44 per cent of its value against the dollar this year. This drop makes the lira the world’s worst performing currency in 2018, overtaking crisis-hit Argentina.

A major factor in the lira’s rapid decline is a diplomatic row with the US over the detention in Turkey of pastor Andrew Brunson. Mr Brunson was arrested in October 2016, accused of aiding an organisation which the Turkish government says was behind a failed coup attempt that year.

However, the Turkish currency is also struggling due to a lack of investor confidence in the state of the country’s economy.

Turkey has a large current account gap, equivalent to 7 per cent of GDP last year, which means the economy is heavily reliant on foreign money, and inflation has soared to 15 per cent, three times the central bank’s 5 per cent target.

Meanwhile, there are doubts over President Recep Tayyip Erdogan’s ability to handle the crisis in a rational way.

Commenting on the currency movements last week, Mr Erdogan said: “If they have their dollars, we have our people, our God.”

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