October 26, 2021: -On Sunday, Turkey’s lira fell to a fresh record low after President Recep Tayyip Erdogan said he pursued the expulsion of ten foreign ambassadors.

On Monday, the beleaguered currency was trading at 9.738 to the dollar at 11.45 a.m and London time, hitting an all-time low of 9.82 to the dollar earlier in the day.

On Sunday, Erdogan declared during a rally that he had demanded the status of “persona non grata” be applied to the ambassadors of the U.S. and nine different Western countries after calling for the release of Turkish philanthropist Osman Kavala from prison.

The lira, having hit a record low the last week after Turkey’s central bank cut its key interest rate despite the increasing inflation, is in for more pain if Erdogan continues on this path, analysts warned. It’s decreased 24% versus the dollar so far this year.

“If Erdogan’s threat is carried out, it will trigger the worst crisis amid Turkey and the Western world since the AKP got into power in 2002,” Teneo co-president Wolfango Piccoli wrote, which refers to the president’s political party.

Observers note that the foreign ministry has not yet appeared to carry out Erdogan’s instructions, as “none of the diplomats has been formally notified,” Piccoli wrote. Turkish Foreign Minister Mevlut Cavusoglu, responsible which carries out the order.

Erdogan’s comments boosted fears of heightened tensions between the West and Turkey, which reaches the already weak lira. Investors have been concerned about the central bank’s lack of independence from Erdogan, who has said that interest rates are “the devil” and holds the unconventional belief that cuts them will reduce inflation, the opposite of most economists’ cases.

If the ambassadors were to be expelled, “the lack of Western diplomatic representative in Ankara will hurt Erdogan,” said Timothy Ash, a market strategist at Bluebay Asset Management. “The ten will reduce interaction with the Erdogan regime, and investment into Turkey will suffer.”

The ten countries whose ambassadors were targeted by Erdogan, the U.S., Canada, France, Germany, Denmark, Norway, Sweden, Finland, New Zealand, and the Netherlands account for half of Turkey’s top 10 trading partners. The group includes seven NATO members and six EU members.

“The beleaguered Turkish Lira would decrease under intense pressure after setting various record lows over the past week,” Teneo’s Piccoli added.