Vice President Cevdet Yılmaz on Wednesday said the impact of market fluctuations after the detention of Istanbul's mayor would be limited and that the economy continues to progress in line with the government's medium-term program targets.
Police detained Mayor Ekrem Imamoğlu last Wednesday, and a court jailed him on Sunday pending trial on corruption charges, sparking a major market sell-off and sending the Turkish lira and bonds sharply lower.
The opposition claimed the aftermath of Imamoğlu's arrest imposed a TL 915 billion (over $24 billion) burden on the budget, an allegation Yılmaz dismissed.
"Such claims are unfounded. There may be a very short-term and partial impact, which can be mitigated through necessary measures within our budget," Yılmaz told reporters at the Parliament.
Treasury and Finance Minister Mehmet Şimşek and Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan told international investors on a call Tuesday that they would do whatever was needed to tame market turmoil and that there would be no lasting impact on the economy.
Markets continued to stabilize on Wednesday after the Istanbul stock market finished Tuesday up 4.5% and the lira steady at just under 38 to the dollar.
The Borsa Istanbul Stock Exchange’s benchmark BIST 100 index ended last week down 16.6%, its worst drop since the peak of the global financial crisis in October 2008.
Both the lira and the BIST 100 index remained relatively stable on Wednesday.
The Treasury, central bank, the Banking Regulation and Supervision Agency (BDDK) and the Capital Markets Board (SPK) had already held a series of meetings with market actors over the weekend and announced several steps.
The measures had begun with the central bank raising the upper band of the interest rate corridor by two points to 46% in an interim meeting last week, pausing funding from the policy rate.
"Temporary increases in interest rates might have a minor effect, but beyond that, there is no significant impact," Yılmaz told reporters.
While the central bank took a tightening step of close to 400 basis points, it also started liquidity note issuance and lira-settled forward foreign exchange sales transactions.
The central bank's net foreign exchange position likely dropped by some $27 billion due to sales last week since Wednesday, according to bankers' calculations from the bank's balance sheet.
Yılmaz reassured that the central bank's reserves remain at "sufficient levels" and that the banking system is "healthy and robust."
"There is a temporary impact due to these events, but exaggerating these figures serves no purpose," he noted.
Yılmaz also highlighted the stabilization of financial markets. "This week, we are witnessing a much calmer atmosphere in the markets. In the coming periods, our economy will continue to progress in line with program targets, thanks to the coordinated efforts of our institutions."
He was referring to the economic turnaround program introduced in mid-2023, which saw authorities shift from years of ease policy to aggressive tightening aimed mainly at curbing stubborn inflation.
"Our program is clear, and we are implementing it decisively. While positive or negative developments may occur during the implementation of a program, what matters is the program itself, its direction, and its overarching framework."
Meanwhile, the SPK has banned short selling on the Istanbul stock market for one month and share buyback limitations and equity ratio requirements have been relaxed to prevent further equity losses.
Türkiye’s international sovereign bonds were also continuing to claw back some of last week's losses, with the 2045 maturity up almost 1 cent on the dollar at 84.6 cents on the dollar, Tradeweb data showed, after falling more than 3 cents last week.
Türkiye’s five-year credit default swaps, which investors often use as a hedge against turmoil, eased again too, ending Tuesday back under 300 basis points, according to S&P Global Market Intelligence, having spiked to almost 330 from 260 last week.
