Turkish lira pulls back from record low, markets rattled

ISTANBUL/ANKARA, (Reuters) - Turkey’s lira pulled back from a record low of 7.24 to the dollar on Monday after the central bank pledged to provide liquidity, but it remained under selling pressure and its meltdown caused further unease on global markets.

The currency has lost more than 40 percent against the dollar this year, largely due to worries about President Tayyip Erdogan’s influence over the economy, his repeated calls for lower interest rates, and worsening ties with the United States.

On Friday the slide turned into a crash: the lira dropped as much as 18 percent, hitting U.S. and European stocks as investors took fright over banks’ exposure to Turkey.

Another lira collapse on Sunday night hit Asian shares and drove global demand for the safe-haven dollar, Swiss franc and yen. Shares in Europe’s major banks also fell.

Analysts say the crisis has been a long time coming and reflects Turkey’s refusal to raise interest rates to curb double-digit inflation and cool an overheated economy.

Erdogan, rejecting economic fundamentals as the cause of lira weakness, said Turkey was the target of an economic war.

“The developments over recent weeks have shown that Turkey is under siege,” he told a meeting of Turkish ambassadors. “It is clear that these attacks will continue for a while.”

He also said he expected the exchange rate to return to a ‘rational level’ and that Turkey had an action plan in place.

In Berlin, German Chancellor Angela Merkel said “no one has an interest in an economic destabilisation in Turkey” and that Ankara should ensure the central bank’s independence.

The bank, which surprised markets last month when it held interest rates despite the tumbling lira, announced measures on liquidity and reserves after Finance Minister Berat Albayrak said the economic action plan would start on Monday.

Bankers also said the central bank would meet banks’ lira liquidity needs at the overnight rate of 19.25 percent — 150 basis points above the benchmark weekly repo rate — though it might not use the overnight funding on Monday because needs were low.

They said that could be the first step towards tightening policy via an interest rate corridor, an instrument used in previous years, rather than increasing the benchmark rate. BEIJING, (Reuters) - China’s Commerce Ministry said yesterday it will comprehensively assess a new U.S. defence act that strengthens the role of a key committee tasked with reviewing proposed foreign investment, and called for fair treatment of Chinese investors.

U.S. President Donald Trump signed a $716 billion defence policy act on Monday that authorises military spending and includes watered-down controls on U.S. government contracts with China’s ZTE Corp and Huawei Technologies Co Ltd .

The National Defense Authorization Act, or NDAA, strengthens the Committee on Foreign Investment in the United States (CFIUS), which reviews proposed foreign investments to weigh whether they threaten national security. That measure was seen as targeting China.

In a short statement, China’s Commerce Ministry said it had noted the inclusion of CFIUS in the act and would “comprehensively assess the contents”, paying close attention to the impact on Chinese firms.

“Chinese and U.S. companies have a strong wish to deepen investment cooperation, and the potential is enormous,” the ministry added.

“The governments of the two countries should listen to the voices of the companies, and provide a good environment and stable expectations,” it added.

“The U.S. side should objectively and fairly treat Chinese investors, and avoid CFIUS becoming an obstacle to investment cooperation between Chinese and U.S. firms.”