Turkey’s lira rallied about 1 percent after the United States unveiled long-anticipated sanctions over Turkey’s purchase of Russian S-400 defenses that narrowly targeted the country’s top defense development body and could have been worse, analysts said.
The currency recovered from earlier losses and was at 7.835 versus the dollar at 1908 GMT, up about 0.2 percent on the day. It was worth 7.9 before the US announcement.
The sanctions, threatened since last year, target Turkey’s Defense Industries Directorate (SSB) and include a ban on all US export licenses as well as asset freezes and visa restrictions for SSB’s president and three other employees.
Analysts said they could have been broader, offering some reprieve for Turkey’s economy that has already been hard-hit by the COVID-19 pandemic and double-digit inflation. The lira touched a record low as recently as last month.
“It represents a lighter option in contrast to the possible measures that were available ... and opens way for potential dialogue after (US President-elect Joe) Biden is sworn in,” said Kaan Nazli, senior economist for EM debt at Neuberger Berman.
“On the flip side ... should the government’s response not be measured, we can see further dollarization as it typically occurs during periods of heightened geopolitical risk,” he said.