The Turkish Lira has been on the decline against the dollar and euro since Friday last week, dropping to about 7.5 % against the dollar and losing almost a third in value this year alone. The problem Turkey is facing is its escalating conflict with the USA, which is now putting them under economic and political constraints.
Recent talks between US and Turkish officials in Washington have failed to reach any resolution, other than both sides sanctioning one another. The European Central Bank is also looking at taking preventive measures against Turkish debt, while Spanish, Italian and leading French financial institutions are also looking to protect themselves from exposure to the current Turkish currency crisis.
The Rand has also significantly suffered from the Lira falloff; in recent days the rand has dropped by 10% against the dollar – a new 2 year-low. Government bonds also took a hit as the Lira’s fall started impacting other emerging markets. The Rand is more vulnerable to turbulent swings within emerging markets due to it being strongly traded within these markets as well.
The impact of the Lira’s sudden shortfall came as a surprise to the South African Reserve Bank, but the Reserve Bank has stated it will not interject to support the Rand at this time. Economist are predicting that the Rand will regain the lost value as the Turkish Crisis balances out. The JSE remained largely unaffected.