How Istanbul mayor’s arrest shocked Türkiye’s economy

CGTN Europe

Türkiye has spent the past two years trying to win back investor trust — cutting spending, raising interest rates, and holding the line on inflation.  But Istanbul mayor İmamoğlu’s arrest sent markets spinning: the lira plunged, reserves were drained.  Our explainer looks at the economic cost of political risk — and why analysts are watching closely.  #TürkiyeEconomy #İmamoğlu #Austerity #LiraCrisis #TCMB #PoliticsAndMarkets

Transcript

00:00Lira and freefall reserves drained markets in turmoil.

00:03The arrest of Istanbul mayor Ekrem İmamoğlu has sent shockwaves through Turkey's economy.

00:09Now let's break down how it happened.

00:11Upon Istanbul mayor's arrest, the Turkish lira crashed from 36.57

00:16to an all-time low of 41.53 against the dollar, a loss of nearly 13.6% in just days.

00:24Central banks sold around 26 billion in foreign reserves over three days,

00:28nearly 80% of the gains made in the past year, to stabilize the lira.

00:33Turkey's main stock market index fell over 16% before making a slight recovery.

00:38To contain the fallout, Finance Minister Şimşek held an emergency call with over 4,500

00:44international investors.

00:46But even prior to İmamoğlu's arrest, Turkey's economy was already walking a tightrope.

00:52Inflation, while down from its peak 85% three years earlier,

00:56remained high, clocking in at 39% in February 2025,

01:00and the lira had been on a steady downward slide.

01:03Over the past two years, the government pursued a strict austerity program

01:07aimed at curbing inflation and restoring investor trust.

01:11Interest rates were sharply increased, public spending was reduced,

01:15and wage growth remained constrained.

01:17These measures helped slow inflation and rebuild reserves,

01:20but came at a significant cost to households and domestic demand.

01:24Now, the political fallout from the arrest has triggered renewed market volatility

01:28and raised fresh concerns.

01:30Analysts warn that the shock may erode policy credibility and investor trust,

01:34putting at risk the fragile gains achieved through two years of painful economic adjustment.

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