‘Meltdown’ warning as Turkish lira dives again
US tariffs on steel exports and unwillingness to raise interest rates increase pressure on Erdogan
THE Turkish lira plunged another 8pc and analysts warned of “total meltdown” yesterday as president Recep Tayyip Erdogan insisted the troubled currency should soon settle at “a most reasonable level”.
He accused the US of a plot to “stab your strategic partner in the back” and said the economy was under “siege”.
Social media accounts are being investigated for talking down the economy, leading the Turkish president to say the spread of fake news about the country is “treason”.
The lira is the worst-performing currency on international markets so far this year, falling by 46pc against the dollar in 2018 to date. One US dollar now buys almost seven lira. Last year the ratio was one to four. Five years ago one dollar bought only two lira.
Nerves spread to other markets too. Stocks slid 2pc in Japan and 1.5pc in Hong Kong, with top eurozone shares down 0.5pc.
South Africa’s rand slid by as much as 8pc before paring its losses to 2.3pc, while the Argentinian peso lost 3.6pc.
Analysts fear worse is to come. “Turkey appears on the verge of a total currency and financial meltdown,” said Michael Every at Rabobank. “If the lira continues to fall in tandem with confidence amongst households and corporates, a bank run cannot be excluded, metastasising the crisis.”
The central bank offered more liquidity to banks, but Mr Erdogan ruled out higher interest rates, describing them as “a vehicle of exploitation”.
Higher interest rates in the US have pushed the dollar up against all other currencies, but Turkey has proven particularly vulnerable. Its central bank was unable to hike interest rates to combat inflation because of the president’s opposition to the policy.
When it did manage an emergency hike in May, it came too late. Economists believe more hikes are required to rein in borrowing and spending.
Rabobank said Turkey needed rates to rise by 10 to 15 percentage points, and could consider imposing capital controls to limit the flows of funds leaving the country.
Political tensions with the US have also worsened the crisis. Donald Trump, the US president, imposed extra tariffs on Turkish steel and aluminium on the basis that its weak currency gave exporters an unfair advantage.
The turmoil may not be contained in Turkey. Analysts pointed to Argentina and South Africa as vulnerable economies which could follow it. Imbalances in the economies of Ukraine and Pakistan also indicate they may be at risk, according to Oxford Economics.