Turkey's Currency Crisis

The sharp sell-off in the lira has pushed Turkey once again into a full-blown currency crisis, fuelling concerns about financial contagion to other emerging markets. As we continue to track and analyse this situation – including the currency outlookdomestic bank risks , EM contagion risks and global exposure – we will be posting key research on this page. We have also included highlights from our coverage of Turkey’s currency crisis in 2018.

Note: You can also now track balance of payments risks for Turkey and the broader EM universe via our new EM Capital Flows Monitor on CE Interactive, our data and charting platform.

If you have questions about accessing any of this research, please contact us at sales@capitaleconomics.com

Key research

Turkey Consumer Prices (Nov.)
Emerging Europe (3 December 2021)
Headline inflation hit a three-year high of 21.3%. It won’t stop there, without a more forceful intervention by the central bank.

Turkey: how strong is the fiscal picture?
Emerging Europe (25 November 2021)
While the threat of a sovereign default is very low, this crisis does pose risks to Turkish public finances.

Turkey & policy responses during past “sudden stops”
Emerging Europe (24 November 2021)
Even after intraday falls of as much as 15%, the CBRT may not follow the central bank script for dealing with currency “sudden stops”.

Rising US rates bigger worry for EMs than Turkey contagion
Capital Daily (23 November 2021)
Market commentary sums up an extraordinary day of lira trading and explains why it’s the Fed, and not the CBRT, that EMs need to worry about.

Global exposure to Turkey’s currency crisis
Global Economics (23 November 2021)
The risks of spillovers with the rest of the world appear small, for now, because of limited trade and financial ties.

Video: Turkey’s currency crisis – Mapping the endgame and EM contagion risks
(23 November 2021)
Watch this recording of a Drop-In session with Jason Tuvey and Shilan Shah discussing how the Turkey crisis will play out.

Lira in freefall as policymakers remain defiant
Emerging Europe (23 November 2021)
A defiant speech from President Erdogan suggests this crisis has further to run.

Assessing the risks in Turkey’s banking sector
Emerging Europe (22 November 2021)
Although Turkey’s lenders are in reasonably good shape to withstand the lira’s plunge, their FX deposits are a vulnerability.

Further rate cuts likely to put more pressure on the lira
Capital Daily (18 November 2021 )
Daily market commentary argues that, with the CBRT more tolerant of a weak lira than it was in 2018, the currency looks set for more weakness – even if it now looks undervalued.

Lira sell-off and lessons from other “sudden stops”
Emerging Markets (18 November 2021)
Survey of EM crises past highlights risk of +10% falls in the lira without a more aggressive policy response.

Turkey and EM contagion risks
Emerging Markets (18 November 2021)
This won’t see a repeat of 2018-style financial contagion but some EM currencies are vulnerable to weakness.

CBRT defies investors with rate cut, crisis risks mount
Emerging Europe (18 November 2021)
The latest big rate cut highlights the central bank’s failure to take a stand against President Erodgan and raises the risk of more big falls in the lira.

All eyes on CBRT as Turkish lira continues to tumble
Emerging Europe (17 November 2021)
Our CBRT meeting preview explores the financial markets risk of a 100 basis point rate cut.

Emerging Markets Capital Flows Monitor
Emerging Markets (16 November 2021)
Our latest monthly read of EM capital flows highlights more net outflows, but also shows how Turkey’s vulnerabilities make it an outlier.

Turkey: threat of currency crisis continues to grow
Emerging Europe (16 November 2021)
Analysis lays out how a deep sell-off in the lira could damage Turkey’s economy and financial system.

Turkey: comparisons with the 2018 currency crisis
Emerging Europe (3 November 2021)
Compare and contrast: this looks a lot like 2018, but the lira isn’t as misaligned and the current account is in better shape.

The 2018 crisis

Capital Economics won several industry awards for its coverage of Turkey’s 2018 currency crisis. Below are highlights of our research from that period.

Is the Turkish central bank shifting back to orthodoxy?
Emerging Europe (19 September 2018)
The CBRT needed to keep interest rates high and Mr Erdogan at bay in order to restore credibility.

Turkey entering a steep recession
Emerging Europe (29 August 2018)
The lira’s meltdown informed our below-consensus calls for economic growth in 2018-2020.

Turkey: what next?
Emerging Europe (15 August 2018)
After weeks of brutal selling, the lira stabilised enough to take stock of the damage to the economy and financial system.

How can Turkey get out of its crisis?
Emerging Europe (8 August 2018)
The monetary and fiscal prescription needed to heal Turkey.