Turkey tries to calm markets
Lira takes another dive after US’ stab ‘in the back’
Turkey’s central bank on Monday sought to calm markets rattled by the precipitous plunge of the Turkish lira as a defiant President Recep Tayyip Erdogan chastised the US for seeking to stab Ankara “in the back.”
A dispute between NATO allies Turkey and the US – which reached new intensity over the detention of an American pastor – has hammered the lira and also raised questions over the future partnership between Washington and Ankara.
As the latest developments caused the lira to plunge further in value, investors fretted over potential economic contagion from Turkey, particularly to European banks.
The already embattled Turkish lira tumbled some 16 percent against the dollar on Friday as US President Donald Trump said he had doubled tariffs on steel and aluminium from Turkey.
“We are together in NATO and then you seek to stab your strategic partner in the back. Can such a thing be accepted?” Erdogan said at a conference in the capital Ankara.
After Erdogan’s speech, the lira was trading back at 6.9 to the dollar, a loss of seven percent on the day, recovering from even sharper losses in earlier Asian trade where it struck a record low of 7.2362 to the greenback.
In its first statement since what was dubbed “Black Friday” in Turkey, the central bank said it was ready to take “all necessary measures” to ensure financial stability, promising to provide banks with “all the liquidity” they need.
The bank also revised reserve requirement ratios for banks, in a move also aimed at staving off any liquidity issues.
But to the dismay of markets, the statement gave no clear promise of rate hikes, which is what most economists and analysts say is needed to ease the crisis.
Erdogan indicated he was in no mood to offer concessions to the US in one of the worst spats between the two NATO allies in years.
Erdogan said Turkey was facing an “economic siege,” slamming the currency movements as an “attack against our country.”
The Turkish leader has been sanguine over the punitive measures announced by the US, saying that while Turkey’s relationship with Washington is at stake it will look for other partners.
Analysts say that while Washington’s sanctions against Ankara sparked the immediate crisis, Turkey’s economy has been risking trouble for a while due to high inflation and the weak lira.
The central bank has over the last few weeks defied calls from markets for rate hikes to combat these problems, raising fears of interference from Erdogan who has repeatedly called for low interest rates.