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  • How does the Turkish currency crisis impact India?

    Publish date: 11th August, 2018


    Turkey is on the world’s centre stage as its currency, the Turkish Lira plunged as much as 16% against the US dollar on Friday. The Lira has dropped by more than 40% in 2018 and it is regarded as the worst performing major currency this year. This freefall in Turkish currency has created ripples across global markets. But how big is Turkey crisis effect on India?

    Let’s find out.


    The Turkey currency crisis

    Donald Trump, the US President recently announced that the tariffs on steel and aluminium imports from turkey would rise by 50% and 20% respectively. Following this announcement, the already troubled Turkish Lira plummeted by 16% to new record lows on Friday. This is the Lira’s worst drop since Turkey’s financial crisis in 2001.

    Click here to find out about India’s correlation to global markets.

    Why the increase in tariffs all of a sudden?

    Surprisingly, the widening rift between the United States and Turkey has been due to a single person: an American pastor named Andrew Brunson. Brunson is facing trial in Turkey for espionage and terror-related charges. The US president however, believes Brunson to a ‘wonderful human being’ who should be released immediately. But when talks between the two countries regarding his release broke down, Trump announced these large sanctions as a retaliatory measure.

    Impact on global currencies

    The plunge in the Lira has sent shivers across global markets. First of all, the Turkish stock market lost around 2.5% and was a sea of red with almost every stock down. Major European banks like the BBVA, UniCredit and BNP Paribas have big operations in Turkey. This has become a cause for concern for investors after European bank shares dropped by as much as 2% in early market trading on Monday. Emerging markets around the world have also suffered as a result of the Lira’s sell-off. The Russian Rouble fell to a thirty month low while the South African Rand slumped to levels not witnessed since mid-2016 according a report by CNBC.

    Also read: 3 things to watch about India’s economic outlook for 2018-19

    The Indian scenario

    The geopolitical Turkey crisis effects India as well as the rupee hit a fresh record low against the US dollar. The rupee was down 1.29% to 69.74 on Monday as emerging market currencies weakened against the dollar. However, the financial crisis in Turkey is unlikely to affect India more than a mild impact on the currency according to experts from Bloomberg. This is because India is better prepared to cope with global shocks after the implementation of multiple structural reforms in the economy.

    Also read: Rupee hits all-time low of 69 against the dollar

    Conclusion

    If John le Carre and Amartya Sen wrote a novel about international espionage and world economics, the result would resemble the current story playing out on the world stage. At the moment, Turkey is taking all steps to combat the market turmoil, but as far as India is concerned, the impact is limited.


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