Turkish lira falls 3% as furious Trump hints at fresh sanctions
DEBT RATINGS DOWNGRADED AFTER US MAINTAINS HARDLINE VIEW TO PASTOR’S DETENTION
Turkey’s battered lira weakened 3 per cent on Friday after a Turkish court rejected an American pastor’s appeal for release, drawing a stiff rebuke from President Donald Trump. He said the United States would not take the detention “sitting down”.
The case of Andrew Brunson, an American missionary in Turkey, has become a flashpoint between Washington and Ankara and accelerated a widening currency crisis. Brunson is being held on terrorism charges, which he denies.
The lira has lost nearly 40 per cent of its value against the dollar this year as investors fret about President Recep Tayyip Erdogan’s influence over monetary policy.
Heavy selling in recent weeks has spread to other emerging market currencies and global stocks and deepened concerns about the economy, particularly Turkey’s dependence on energy imports and whether foreign-currency debt poses a risk to banks.
Borrowing costs may rise further after both Moody’s and Standard & Poor’s ratings agencies cut Turkey’s sovereign credit ratings deeper into “junk” territory late on Friday.
“They should have given him back a long time ago, and Turkey has in my opinion acted very, very badly,” Trump told reporters at the White House, referring to Brunson. So, we haven’t seen the last of that. We are not going to take it sitting down. They can’t take our people.”
US Treasury Secretary Steven Mnuchin told Trump on Thursday that more sanctions were ready if Brunson were not freed.
Speed bumps
The United States and Turkey have imposed tit-for-tat tariffs in an escalating attempt by Trump to induce Erdogan into giving up the pastor. Erdogan has cast the tariffs, and the lira’s sell-off, as an “economic war” against Turkey.
The lira last traded at 6.0100 to the dollar at 21.59 GMT, 3 per cent weaker after tumbling as much as 7 per cent earlier. Turkey’s dollar bonds fell, while the cost of insuring exposure to Turkish debt rose.
As the row deepens, Turkey has sought to improve strained ties with European allies. Finance Minister Berat Albayrak and his French counterpart Bruno Le Maire on Friday discussed US sanctions against Turkey and cooperation between their countries, Albayrak’s ministry said.
“Diplomatic negotiations hit speed bumps and that’s not unusual in these kinds of situations,” said Jay Sekulow, a personal attorney for Trump also representing Brunson’s family. Whatever US actions are taken looks likely to cause more pain for Turkish assets. “There has been no improvement in relations with the US and additional sanctions may be on the horizon,” said William Jackson of Capital Economics, adding that the lira could see a downward trend in 2019 and beyond. Turkey’s banking watchdog has taken steps to stabilise the currency, limiting futures transactions for offshore investors and lowering limits on swap transactions. On Friday, it further broadened those caps.
Turkey and its firms face repayments of nearly $3.8 billion (Dh139.57 billion) on foreign currency bonds in October, Societe Generale has calculated. It estimates Turkey’s shortterm external debt at $180 billion and total external debt at $460 billion — the highest in emerging markets.