The equity markets and the rupee are in turmoil on Monday. The Sensex today closed 224 points down and the rupee hit an all-time low of 69.66 against the US dollar. The reason for the downturn is a turbulence in the currency market of Turkey. Lira, the currency of Turkey, has fallen by more than 12 per cent today against the US dollar, tumbling by one-fifth in the entire week. Lira has been on a downward spiral for quite some time now, as the currency has tumbled by 50 per cent over the period of last 12 months.

Traders are now worried over the Turkish crisis spill-over impact on global economy.

Why is Lira Falling?

There is more one than one reason to be worried about when it comes to Turkey’s currency. To give you an idea, inflation in Turkey is at almost 16 per cent compared to 5 per cent registered in India in the month of June. The recent increase in inflation has led the Reserve Bank of India (RBI) to increase the repo rate by 25 basis points twice in two months. One can gauge the intensity of the problem considering inflation in Turkey has reached the high of 16 per cent.

Current account deficit in India is at 2 per cent, which has reached 5 per cent of Gross Domestic Product (GDP) in Turkey. Current Account Deficit is the excess of imports over the surplus.

Falling Rupee

The Indian rupee, however, pared some of its initial losses after plunging to a lifetime low of 69.62 in early trade and was trading at 69.39, still lower by 56 paise against the US dollar, in late morning deals.

A report from Religare Broking, says, “Emerging market currencies suffered a renewed bout of selling today morning while Asian shares were a sea of red amid a deepening crisis for Turkey’s lira, which plunged to all-time lows on concerns over a rift with the United States.”

The rupee resumed at a record low of 69.47 from last Friday’s closing level of Rs 68.83 at the interbank foreign exchange market here. The rupee’s previous record low was 69.13, marked on July 20.

While a rout in the currency market of Turkey has triggered a sell-off in other emerging market currencies, developed markets, on the other hand, have gained as they have been considered a safe haven. For example, Japanese government bond prices gained by 0.07 per cent on Monday to Rs 150.34.