The Turkish lira neared a record low against the dollar as political and military tensions with neighbouring Greece intensified over territories in the Mediterranean.
The lira dropped 0.2 percent to 7.394 per dollar in early afternoon local time in Istanbul. It had hit a record low of 7.408 per dollar early last week.
Turkey and Greece are carrying out rival military exercises near Greek islands in the Mediterranean in the latest escalation of a tense standoff over disputed territory and hydrocarbon reserves in the area.
The two governments issued tit-for-tat advisories this week informing ships of naval exercises in the maritime region. Turkey’s extension of a navigational telex (Navtex) for the survey vessel Oruç Reis to search for hydrocarbons in a region between Crete and Cyprus prompted Athens to act.
Greece and Turkey are facing off in an intensification of a decades-long dispute over sea rights. The latest political tussle began as Turkey began exploring for oil and gas off Cyprus and Greek islands adjacent to its coastline. Armed military jets of the two air forces have also conducted mock dogfights over the Aegean.
The Turkish lira has slumped against the dollar this year, losing almost 20 percent of its value, largely due to concerns among investors about the country’s economic health. The government and central bank have worked together to slash borrowing costs for businesses and consumers, resulting in a borrowing boom that has threatened to overheat the economy. The central bank has also depleted its foreign currency reserves defending the lira.
Ratings agency Fitch lowered the outlook on Turkey’s ‘BB-‘ long-term issuer debt rating to “negative” from “stable” on Friday. It said geopolitical risks, including possible European Union sanctions for natural gas drilling off Cyprus, may further damage already fragile investor sentiment, which has worsened due to economic and monetary policy.
The central bank’s benchmark interest rate stands at 8.25 percent compared with consumer price inflation of 11.8 percent.
The Turkish military exercises will be held south of Crete, Turkish Defence Minister Hulusi Akar said on Monday, according to local media. Greece was set to begin its naval exercises to the south of the island of Kastellorizo in an overlapping the Navtex issued for the Turkish navy-escorted Oruç Reis.
German Foreign Minister Heiko Maas was due to hold talks in Athens and Ankara on Tuesday in an effort to defuse the political and military tensions. He was meeting with Greek Prime Minister Kyriakos Mitsotakis before traveling to Turkey. Germany is playing a mediating role in the standoff.