The Turkish lira came under pressure on Tuesday amid rising concerns following Turkey’s decision to test radars from its new S-400 Russian missile defense system using American-made F-16 jets, a move that could further escalate a dispute with the United States.
The lira weakened to 5.7389 against the US dollar on Tuesday, after reaching 5.7564 earlier in the day. The benchmark Borsa Istanbul 100 Index also edged down 0.22 percent by midday trading.
Since the start of 2019, the lira has tumbled 8 percent, and is expected to fall further on heightened political uncertainty and geopolitical risk factors.
“The Turkish Lira is on course to conclude 2019 as one of the worst-performing emerging market currencies thanks to domestic and external risk factors,” Lukman Otunuga, senior research analyst at London-based FXTM, told Al Arabiya English.
“Although domestic economic conditions continue to improve with the European Union and OECD raising their growth forecasts for the nation, this sentiment is not being reflected in the Lira’s valuation,” he added.
Turkey, a member of the North Atlantic Treaty Organization (NATO), tested on Monday the radars of its new Russian S-400 missile defense systems that it acquired over the summer.
Ankara’s purchase of the Russian-made missiles has been a major element behind Turkey’s faltering relations with the US.
The United States has said in the past that the missiles are not compatible with NATO defenses and pose a threat to US defense company Lockheed Martin’s F-35 stealth fighter jets – which Turkey is still looking to purchase.
“Turkey is simply playing power politics… just trying to increase its leverage on the US and to improve its status on the negotiating table because [it] is still negotiating with the US to acquire the F-35 fighters and possibly the Patriot air defense systems,” said Riad Kahwaji, founder and chief executive of the Institute for Near East and Gulf Military Analysis.
Turkey’s decision to move forward with the Russian-made defense systems will likely increase pressure on the US Treasury to impose sanctions on Ankara. It also comes as the Turkish military maintains a presence in northern Syria, following its intervention last month against Kurdish-led forces.
“Turkey has been trying to use its special status as a member of NATO and at the same time has its own reservations on US policies in Syria with regards to the Kurds, Kahwaji told Al Arabiya English.
On Tuesday, Turkish President Tayyip Erdogan placed pressure on the central bank to continue slashing interest rates to ease inflation and encourage investors and consumers across the country. He also asked Turkish citizens to “leave the dollar” and convert their foreign currencies to Turkish lira to show patriotism and boost the local currency.
Turkey’s inflation hit 8.5 percent last month, failing to its lowest level in almost three years.
“Although the Central Bank of the Republic of Turkey has cut interest rates by 1,000 basis points to 14 percent since July, another 50-100 basis point remains on the cards in December should inflationary pressures continue easing,” added Otunuga.
-John Benny, Al Arabiya English, contributed to this article.
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