Turkey tries to contain crisis as currency continues to fall
A vendor offers Turkish flags for sale at a market in Istanbul, on Monday.
ANKARA, Turkey — Turkey’s central bank took action Monday to free up cash for banks as the country grapples with a currency crisis sparked by concerns over President Recep Tayyip Erdogan’s economic policies and a trade and diplomatic dispute with the United States.
The Turkish lira has nosedived over the past week, accelerating a monthslong decline, and tumbled an additional 7 percent Monday as the central bank’s measures failed to restore market confidence.
Investors are worried about a confluence of factors: the country’s reliance on foreign loans that may stop flowing in as interest rates rise in other economies, such as the U.S.; Erdogan’s insistence that the central bank not raise interest rates; and a spat with the U.S. that has led to sanctions and the fear of greater isolation from longtime allies in the West.
The uncertainty pushed down world stock markets and briefly caused a sharp drop in the currencies of other emerging countries, such as South Africa and India, amid concerns that investors might see similar issues in their economies.
The lira hit a record low of 7.23 per dollar late Sunday after Erdogan remained defiant in his economic policies and the standoff against the United States, a NATO ally.
“Turkey is faced with an economic siege,” Erdogan said Monday, in the latest of a series of speeches. “We are taking the necessary steps against these attacks and will continue to do so.”
He has threatened to seek new alliances — a veiled hint at closer ties with Russia — and warned of drastic measures if businesses withdraw foreign currency from banks.
Erdogan also ruled out the possibility of higher interest rates, as they can slow economic growth. But independent analysts say higher rates are needed urgently to stabilize the currency, and Erdogan’s hard line is one of the reasons investors are worrying.
On Monday, the central bank announced a series of measures to “provide all the liquidity the banks need” — but offered no hint of a rate increase.
The moves are meant to grease the financial system, ease worries about trouble at banks and keep them providing loans to people and businesses.