Turkey tries to calm the markets
• Central bank moves to stave off liquidity issues as Erdogan accuses Nato partner US of stabbing it in the back with higher trade tariffs
Turkey’s central bank on Monday sought to calm markets rattled by the plunge of the Turkish lira as 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 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 Turkish lira tumbled 16% 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.
After Erdogan’s speech, the lira was trading back at 6.9 to the dollar, a loss of 7% 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 needed.
The bank 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.
Erdogan said Turkey was facing an “economic siege” and that while Turkey’s relationship with Washington was at stake it would look for other partners.
Analysts say while the US 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 defied calls from markets for rate hikes to combat these problems, raising fears of interference from Erdogan, who has called for low interest rates. He had on Saturday described interest rates as a “tool of exploitation”, in remarks unlikely to impress the markets.
“Investors need to see serious economic measures and not political ones to prevent things getting completely out of control,” said Hussein Sayed, chief market strategist at FXTM, saying this had to include an emergency rate hike.
But Erdogan advised Turks not to worry. “It is not at all like we sank and we are finished. The dynamics of the Turkish economy are solid, strong and sound and will continue to be so.” He blasted what he called “economic terror” on social media, vowing that the judiciary had taken necessary measures to punish so-called speculators.
The Turkish interior ministry launched an investigation into 346 social media accounts on grounds of “provocative sharings”, the state-run Anadolu news agency reported.
American pastor Andrew Brunson has been held since October 2016 on terror and espionage charges and, if convicted, could face a jail term of 35 years. Trump has described his detention as a “total disgrace” and urged Erdogan to free him.
A delegation led by Turkish deputy foreign minister Sedat Onal failed to secure a deal last Wednesday in talks in Washington on a number of issues, including Brunson.
On Sunday, Erdogan confirmed media reports that Washington gave Onal’s delegation a deadline of 6pm last Wednesday for the release of Brunson “otherwise the sanctions will begin”.
Agathe Demarais, Turkey analyst at the Economist intelligence unit, said that “with an overheated and indebted economy, Turkey will require credibly orthodox economic policies, fiscal discipline and central bank independence to reverse the current situation”.
“A normalisation of relations with the US could also reduce the amount of legwork that the central bank will have to do to control the economic situation, but this is unlikely to happen at the moment,” she said.