Tumbling Turkish lira highlights fears of political risk The Turkish lira hit an all-time low against the dollar on Friday amid the country's worst corruption scandal for years, in a tumble that highlights concerns about political risk and the economy's dependence on hot money. The currency went below TL2.095 to the dollar on Friday, the latest slide in a week marked by the US Federal Reserve's decision to rein in monetary stimulus and the arrest in Turkey of three sons of cabinet ministers in a scandal allegedly involving millions of dollars in bribes. The lira later recovered some of the lost ground. "[The] deepening turmoil in Turkey is not just political," Strobe Talbott, head of the Brookings Institution, said via Twitter. [The] stakes are geopolitical. Stable, secular, moderate state is crucial to region and world. The lira later recovered to TL2.088 after the central bank sold $400m in foreign exchange in a bid to defend the currency - a strategy that analysts doubt will prove sustainable. "As long as political tension remains high that will keep foreign exchange demand high, [and] the central bank's foreign exchange sales will not reverse the trend in the lira," wrote Ozgur Altug at BGC Partners in Istanbul, noting the central bank has only about $42bn in net reserves - equal to around two months of imports. The central bank has proved reluctant to increase headline interest rates amid frequent denunciations by Recep Tayyip Erdogan, prime minister, of an ill-defined "interest rate lobby" that he says is trying to hold Turkey's growth back. However, Turkey is reliant on short-term capital inflows to underwrite more than 80 per cent of its current account deficit of more than $60bn. "The lira's underperformance will make it harder for the central bank to keep its explicit commitment not to hike rates since defending the currency through selling foreign exchange alone is unlikely to be effective," added Ilker Domac of Citigroup in a note. The government attributes its current predicament to a plot. "This dirty game, this operation and these traps are intended to affect [next year's] local and presidential elections by breaking the bonds of love with our nation," said Bekir Bozdag, deputy prime minister, on Friday, referring to the corruption investigation. The [ruling] AK party and the government has its head held high - and will continue on its way. It has responded to the arrest of more than 50 people in the anti-corruption probe by transferring police officers involved in the investigation, as well as other moves to consolidate its control. On Friday, a high-ranking official at the finance ministry's financial crimes post was removed from his post. The sale was also disclosed of Sabah-ATV, a media group that includes a leading pro-government newspaper, to an entity earned by the Kalyon group, a construction group involved in the redevelopment of Istanbul's central Taksim square, the focus of protests against Mr Erdogan's government in the summer. Turkish media have been widely criticised for an ownership structure that leaves many prominent outlets in the hands of companies dependent on government business. In what was widely interpreted as a further move towards consolidating government influence over the media, the head of the news division of TRT, the state broadcaster, was also removed from his post. "Right now, Turkey sticks out like a sore thumb," said Nicholas Spiro of Spiro Sovereign Strategy. While Turkey remains one of the most vulnerable EMs [emerging markets] to a rise in US Treasury yields, it has also become one of the riskiest politically. These two weaknesses are feeding off each other right now - but it's the latter which dominates.