Turkey was headed toward a currency crisis Tuesday as the value of the lira fell and the country’s central bank appeared to be running out of ammunition to stop its decline toward record lows.
The lira was trading at more than 8 to the euro for the first time since a crisis in 2018. The lira was faring better against the U.S. dollar, but analysts said that the central bank was probably running out of reserves to buy lira and prop up its value.
President Recep Tayyip Erdogan has battled the economic effects of the pandemic by encouraging banks to increase lending and by pressuring the central bank to keep its benchmark interest rate below the rate of inflation. Those policies have fueled fears of a credit bubble, prompting investors to sell Turkish assets, driving down the lira’s value against other currencies.
Mr. Erdogan survived currency crises in 2014 and 2018, defying predictions of economic collapse that would threaten his hold on power. But the stresses of the pandemic have made it more difficult for him to strong arm the Turkish economy as he has done in the past.
The economy is “only one shock away from a crisis,” said Maya Senussi, a senior economist at Oxford Economics.