Turkey Looks to Calm Markets After Court Blow to Opposition

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(Bloomberg) — Turkey’s top economic policymakers will meet on Friday morning to discuss measures to stem market turbulence after a court ordered the removal of the main opposition party’s leadership.

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Finance Minister Mehmet Simsek will convene the Financial Stability Committee at 8:30 a.m. in Istanbul with the aim of ensuring the “efficient, healthy and seamless function” of Turkish markets, according to a statement.

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A court ruling on Thursday ousted Ozgur Ozel as the head of the Republican People’s Party, known by its Turkish initials CHP, and ordered the return of the party’s former leader Kemal Kilicdaroglu. Stocks tumbled, closing down 6.1%, and state lenders stepped in on behalf of the central bank to support the lira via foreign currency sales. The lira was trading 0.3% lower at 45.74 per US dollar as of 8:23 a.m. in Istanbul.

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The decision removes even more barriers to President Recep Tayyip Erdogan extending his almost quarter-century of rule ahead of elections slated for 2028. The opposition says Erdogan is weaponizing the legal system to undermine rivals he fears could defeat him at the ballot box. The government defended Thursday’s ruling as an independent judicial decision. The CHP said it will appeal to a higher court.

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The party has faced an aggressive crackdown in the past two years. One of its most high-profile figures, Istanbul Mayor Ekrem Imamoglu, was jailed last March on charges of corruption just days before he was set to announce his presidential bid.

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“It’s a dark day for democracy,” Ozel said at CHP headquarters in Ankara late Thursday evening. “The damage they’ve done to the country within a half hour is $10 billion,” he added, referring to market losses. “We will wake up to a disaster tomorrow.”

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The ruling has not been received well by markets, said Daniel Wood, a fixed income portfolio manager at William Blair International. “We believe this move increases the chances of an early election and the possibility of a change in the orthodox economic policy which had been attracting international investors to the market,” Wood added.

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The cost of borrowing the Turkish lira in the offshore market rose to near the highest levels in two months, a sign that the court decision has elevated trader concerns amid a rise in risk premiums. The five-year credit default swap, a barometer of risk, was at 261 basis points following a 20-basis-point jump yesterday.

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Kilicdaroglu’s 13-year tenure as CHP head was scarred by consecutive defeats to Erdogan and the AK Party. Ozel displaced him in late 2023 and energized the party, which produced a stunning upset in municipal elections two years ago.

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Erdogan is serving a final term as president until 2028, though he could run again if parliament calls for an early election or if the constitution is amended for him to run again. He first came to power as prime minister in 2003.

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The CHP has repeatedly called for early elections in the hopes of ending Erdogan’s increasingly centralized rule and tackling a deep cost-of-living crisis.

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The court ruling comes at a fragile time for the Turkish economy, as annual inflation accelerated to more than 32% last month owing to the fallout of the Iran war. The central bank last week raised its year-end inflation target to 24% from 16%, citing the impact of higher energy prices on Turkey, which is a major energy importer.

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—With assistance from Tugce Ozsoy and Selcuk Gokoluk.

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