The other main development over the weekend was the formal arrest of Istanbul Mayor Ekrem Imamoglu who has been jailed on corruption charges on Sunday. The case has the potential to keep Imamoglu, who denies the charges, behind bars for years and prevent hm running from running against President Erdogan in the next election.
It follows his detention last Wednesday and the decision to revoke his university diploma. His arrest came on the same day that he was scheduled to be declared the presidential candidate for the main opposition Republican People’s Party, CHP.
The latest political developments have triggered a pick-up in domestic financial market volatility in Turkey. The BIST 100 equity index has fallen sharply by around 15% and USD/TRY initially jumped above the 41.000-level last week before dropping back towards the 38.000-level. It represents a step up in the pace of lira depreciation. Prior to the last week’s detention of Imamoglu, the lira had declined by an annualized rate of around -16% against the US dollar year to date which was roughly the same rate of depreciation as in 2024.
Over the weekend, the Central Bank of Turkey held a meeting with executives from banks to discuss potential market volatility and future steps according to people familiar with the matter. The Banks Association later confirmed that the monetary authorities and lenders had held a “technical meeting”. At the same time, Treasury and Finance Minister Simsek held a meeting with regulators on measures to be taken against market turmoil. Turkey’s market regulator has since announced steps on Sunday including a ban on short-selling, more relaxed conditions for share buybacks and a reduction of the minimum equity capital protection requirement for margin trading.
The Central Bank of Turkey had already taken policy action at the end of last week on Thursday when it raised the overnight lending rate by 2 percentage points to 46.00% allowing policymakers to raise the average cost of funding they provide to commercial lenders and providing support for the lira. They also decided to suspend lending at its lower rate of one-week repo at 42.5% for an unspecified period. The CBRT noted that the action was necessary to support their tight monetary stance.
