Ankara’s critical role in calming the fears

▶ Fallout with the US damaging more than just the lira

Political and policy stability are the cornerstone of a country’s overall well-being and its economy. Shake one of them and you rattle the entire economic infrastructure. Shake both of them and you have a Turkish lira crisis, threatening to blow into a full-fledged meltdown.

The Turkish currency has been on a roller-coaster ride, plunging four straight days through to Monday.

It has lost about a quarter of its value against the dollar since President Recep Tayyip Erdogan’s government row with the US over the continued detention of an American pastor worsened last week.

Both parties are nowhere close to a resolution as US President Donald Trump has approved doubling tariffs on Turkish steel and aluminium, while Mr Erdogan has imposed retaliatory tariffs on a range of American goods.

Neither leader, it seems, is ready to blink and the longer this tiff continues, the more it will dent investor confidence in the country. Some bankers and analysts are already voicing concern that what started as currency woes can turn into a full-blown financial crisis for Turkey.

The country’s central bank on Monday introduced a range of measures in the hope of managing liquidity and restoring stability in the country’s financial markets.

To limit the damage, the Ankara regulator said it would “take all necessary measures” and eased rules that govern how commercial banks in the country manage their lira and foreign currency liquidity.

In another move to calm the markets yesterday, Turkey made it harder for traders to bet against the battered lira and eased rules on restructuring troubled loans that have already topped $20 billion, Bloomberg reported.

The new rules published by the regulator have so far succeeded in lifting the battered lira from recorded lows, but it is still about 20 per cent down in August.

How long will the recovery of the lira last and will Mr Erdogan be able to steer Turkey out of the trouble before Mr Trump comes up with another round of tariffs on Turkish imports? These are the questions investors want answered.

They need to see economic policy changes and political stability in the country – and not a white-knuckle ride when it comes to their investments in Turkey.