Turkish lira crisis leads India to the largest rupee drop in 5 years

• On Monday, India’s rupee hit an all time low of ₹69.92 as a result of the Turkish lira crisis.
• The ₹1.09 drop is the largest single-day drop to occur in the past 5 years.
  
• Even the stock markets spiralled witnessing more than half a percent drop.

The ramifications of the Turkish economic crisis hit India yesterday with the rupee plummeting to an all time low against the dollar of ₹69.92. The speculation and apprehension of future volatility led to the drop of ₹1.09. This is the largest single-day drop in five years. It's also the first time that the India rupee has breached the ₹70-mark against the US dollar.

According to experts, the dip in the rupee happened primarily due to the Turkish lira falling nearly 8% in one day.

At the end of yesterday, the rupee was the worst performing Asian currency. The reason India has been hit worse than its neighbours is due to its wide current account deficit that’s already bearing the brunt of US sanction against Iran.

That being said, this financial year, the rupee has depreciated by 8.7% overall. In comparison, the Turkish lira has dropped 28% in August alone, and 45% over the year. Even the Russian ruble’s been hit with a 15% dip.

The stock markets didn’t fair well either in the hazy economic climate with the Sensex and Nifty falling over half a percent each. India obviously wasn’t the sole witness to this phenomenon, with markets all the world being sent into a tailspin.

Leading the charge was the drop in metal and banking stocks. Metal stocks have been on the downturn since the Trump administration announced their tariffs on the import of aluminium as move against China.

Turkish turmoil

The issue between the US and Turkey isn’t even economic. It’s a political issue using economic tools to apply pressure. And at the heart of it all sits Andrew Brunson.

Brunson is an evangelical pastor from the US who’s being detained in Ankara for participating the 2016 coup against Turkey’s current President, Recep Tayyip Erdogan. On home turf, Trump is partly under pressure from a campaign that’s pushing for the pastor’s release.

In retaliation, Erdogan has instructed the chief prosecutor of Istanbul to conduct an investigation into ‘persons who are involved in actions that threaten social peace, domestic calm and unity and confidence in the economy’.

While the US is already fighting a trade war with China on one front, Turkey isn’t too happy about its strategic partner ‘stabbing it in the back’ either. Erdogan has gone as far as to say that there’s an ‘economic war’ being led against Ankara.