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Turkey’s Banks Bear Weight of Currency Crisis

14 August, 2018, 15:26 | Author: Melinda Barton
  • Britain’s FTSE dips as Turkey’s lira crisis shakes world markets

Erdogan on Sunday said that the crash of the lira was a "political plot" and said his country would instead seek new markets and new allies.

The details would be unveiled shortly, the country's finance minister told Turkish newspaper Hurriyet.

The lira has lost about a fifth of its value against the greenback since Friday. It had already fallen more than 40% in the past year. But they said the USA tariff hike on Turkish steel at a time of "considerable stress" tells emerging economies not to expect Washington's help to calm their markets.

Traders shifted into currencies deemed safer, such as the yen and Swiss franc, underlining market worries about Turkey, but on Tuesday those jitters appeared to subside.

However, any China aid would be more of a political gesture rather than something that would bring fundamental support to the lira, he said.

These import taxes came on top of 10% additional tariffs on aluminum and 25% on steel from all countries, in a bid by Trump to protect the United States steel industry and please voters in America's industrial heartland. There is no economic reason ...

"We will give our answer, by shifting to new markets, new partnerships and new alliances, to the one who waged an economic war against the entire world and also included our country", Erdogan said.

"I am specifically addressing our manufacturers: Do not rush to the banks to buy dollars", he said.

Turkey has weathered several tough economic crises over the decades.

The weakness of the Turkish currency has rippled through global markets. The lack of interest-rate action has coincided with a marked worsening of Turkey's relations with the US.

Foreign Minister Mevlut Cavusoglu said Monday that the United States would not achieve aims by exerting pressure and imposing sanctions on Turkey.


The White House on Monday said us national security adviser John Bolton met Turkey's ambassador to the United States to discuss the detention of Brunson.

Turkey and the United States, two North Atlantic Treaty Organisation allies, have been locked in bitter disputes over a string of issues from a pastor's detention on terror charges to the war in Syria.

Trump's decision to double USA tariffs on Turkish steel and aluminium has only exacerbated the situation.

What are Turkish officials doing about the lira?

In a call with reporters late Sunday, Turkey's finance minister Berat Albayrak said Ankara was planning to roll out an "action plan" on Monday in response to the crisis.

"What you want to see is tight monetary policy, a tight fiscal policy and a recognition that there might be some short-term economic pain - but without it there's just no credibility of promises to restabilise things", said Craig Botham, Emerging Markets Economist at Schroders.

Mr Erdogan has presided over soaring inflation and borrowing levels, but insists the lira's plight is the result of a "campaign" led by foreign powers. Mr Erdogan favours lowering borrowing costs to fuel credit growth and economic expansion.

By Monday morning, the fear of contagion was spreading to Asia, from Hong-Kong and Singapore to South Korea and Japan.

But a rapidly falling currency like the Turkish lira undermines that confidence as much more local money is needed to service foreign debt - making default that much more likely. Erdogan's remarks also knocked back investors' expectations of a rate hike from the central bank. In particular, the report flags that Spain's BBVA, Italy's UniCredit and France's BNP Paribas, all of which have significant operations in Turkey, are especially exposed.

Higher US rates make the dollar more attractive to hold, offering investors an extra incentive to switch out of risky emerging country assets.

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