Turkey’s central bank launches economic stability plan

TURKEY’S central bank yesterday announced it was taking all necessary measures to ensure financial stability after the collapse of the lira, promising to provide “all the liquidity the banks need”.

The Turkish currency reached a new record low of 7.24 against the United States (U.S.) dollar in Asia Pacific trade when markets opened yesterday morning. The lira pared some of its losses after the central bank’s announcement, but it was still down more than seven per cent on the day. The currency has lost more than 45 per cent of its value this year.

Worries about President Recep Tayyip Erdogan’s influence over the economy, including his repeated calls for low interest rates in the face of high inflation, and Turkey’s worsening ties with the U.S. have contributed to the steep decline.

“The central bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary,” the bank said in a statement.

Investors fear the lira’s selloff could have a ripple effect in global financial markets with the euro, the South African rand, and Mexico’s peso already dented by Turkey’s crisis.

“Clearly Turkey’s situation is another global risk,” said Konstantinos Anthis, head of research at ADS Securities.

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“Even though the country itself has limited ties with the rest of the world, a spreading of the crisis to Europe via its banks’ exposure is a major concern.”

In an interview with the Hurriyet online newspaper on Sunday, Finance Minister Berat Albayrak described the lira’s downfall as “an attack”, echoing recent comments by Erdogan.

Turkey’s interior ministry said yesterday it was taking necessary legal measures against social media posts regarding the dollar exchange rate that create a negative perception of the economy.

It said 346 social media accounts that posted comments about the weakening of the lira “in a provocative way” has been identified since August 7 and legal action has been launched.

Albayrak said a plan was prepared for banks and the real-economy sector, including small to midsized businesses, which are among those most affected by the foreign exchange fluctuations.