Navigating Volatility: The Current Pressure on Turkey’s Financial Markets

As a result of recent political developments, Turkey’s financial markets have experienced significant volatility and widespread economic repercussions.

Recent Events

Ekrem İmamoğlu’s recent arrest, on corruption and terrorism-related charges, has sparked widespread protests across the country, raising serious concerns about Turkey’s political stability. There have been severe and immediate effects on Turkey’s financial markets with the USD/TRY exchange rate reaching an all-time high of 41.58¹ in March. In a stabilisation attempt, the Central Bank of the Republic of Turkey (CBRT) intervened by raising the overnight lending rate from 44% to 46%² and selling an estimated $25 billion in foreign reserves^3,4. Meanwhile, Turkey’s main stock market index, the BIST 100 index, fell by approximately 15%⁵ in the week ending 21^st March, marking its worst weekly drop since October 2008.

Inflation forecasts have since been revised, with year-end expectations rising by approximately 1% to 29.75%⁶, reflecting concerns over the lira's depreciation and its impact on price stability. S&P Global warned⁷ that the tensions could hinder Turkey’s economic reform agenda.

This is a clear reminder of how quickly political instability can contribute to the state of financial markets. Conditions are unpredictable and operationally risky, creating challenges that are, seemingly, not uncommon for our clients and their counterparts.

Turkey’s History of Volatility

The current volatility in Turkey also mirrors the country’s past economic crises. Notably, the 2018 currency crisis resulted in a rapid devaluation of the lira due to a combination of political tensions, economic mismanagement, and external pressures. During that period, investor confidence was undermined by concerns over the central bank's independence and unorthodox monetary policies. The parallels between the present situation and past events underscore the recurring challenges in stabilising the Turkish economy.

Our View

The Turkish Lira’s volatility demonstrates the heightened risk associated with emerging market currencies influenced by political instability. The CBRT's recent rate adjustments highlight the delicate balance between curbing inflation and supporting economic growth. The market should closely monitor political developments and central bank communications, as these factors are likely to continue driving market sentiment and currency performance in the near term.

As events in Turkey continue to unfold, they serve as a reminder of how political risk can quickly escalate into broader market disruption. For brokers and institutional trading firms, the ability to navigate these periods of volatility hinges on having stable, responsive liquidity and infrastructure designed to adapt under pressure. In times like these, it’s worth asking — how prepared is your trading setup to manage political shocks and protect performance in unpredictable markets? Contact us to find out how we could support you.

Sources

1. Turkish Lira (Trading Economics, 2025)
2. Morgan Stanley, JPMorgan Rule Out a Turkey Rate Cut in April by Tugce Ozsoy and Beril Akman (Bloomberg, 2025)
3. Turkish Markets Seek New Equilibrium After Sharp Drop (2), by Tugce Ozsoy (Bloomgberg, 2025)
4. Cash Arsenal Allows Erdogan to Weather Worst Crisis in Years (1), by Beril Akman and Tugce Ozsoy (Bloomgberg, 2025)
5. Turkey's market rout worsens amid protests, worst stock slump since 2008, by Canan Sevgili and Ezgi Erkoyun (Reuters, 2025)
6. Turkish inflation expectations tick up after market turmoil: Reuters poll (Reuters, 2025)
7. Ratings firm S&P warns Turkey's tensions risk a setback for reforms, by Marc Jones (Reuters, 2025)