Will a 3-lira dollar lead to an economic crisis in Turkey?

Investors have been leaving Turkey for the last couple of months, pushing the lira, which plunged from 2.75 to around 2.9 in 10 days into the ground There has been an acceleration in foreign investors' exit from the Turkish market after coalition options failed, conflicts escalated in southeastern Anatolia and both the United States and Germany decided to remove their Patriot missiles from Turkey. The Turkish Lira has plunged to around 3 liras to the U.S. dollar. This dramatic loss in the currency's value was not unexpected, but few expected such a rapid plunge. The unwillingness of the Central Bank to use the rate weapon against this rapid rising trend has made things worse. 

Foreign investors have been leaving the country for the last couple of months, pushing the lira into to the ground. 

The lira plunged from 2.75 to around 2.9 in the last 10 days. It is likely we'll see rates over the 3-lira threshold come mid-September, when the U.S. Federal Reserve (Fed) is expected to hike rates. The question is to what extent the economy will endure amid such low levels in the lira's value. Can the real sector remain robust? Is Turkey falling into an economic crisis?  

Ins and outs

The Central Bank has published how much foreign capital is invested and how much comes, stays or leaves every Thursday since 2005. 

These short-term capital moves, which are called portfolio investments, play a great role in shaping the country's financial balance in general and the exchange rates in particular. The more foreigners convert their own dollars into liras and buy stocks and bonds, the more foreign currency pours into the economy, pushing the value of the lira up. A cheaper dollar enables imports, production levels on...