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Turkey attempts to calm markets as lira hit again
ISTANBUL, Aug 13, 2018 (BSS/AFP) – 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 United States — 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.
– ‘Economic siege’ –
Erdogan indicated he was in no mood to offer concessions to the United
States 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.
Erdogan 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.”
Erdogan also blasted what he called “economic terror” on social media,
vowing that the judiciary had taken necessary measures to punish so-called
speculators.
The Interior Ministry launched an investigation into 346 social media
accounts on grounds of “provocative sharings”, the state-run Anadolu news
agency reported.
– ‘Unlikely to happen’-
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 immediately.
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.
Erdogan on Sunday confirmed media reports that Washington gave Onal’s
delegation a deadline of 6:00 pm last Wednesday for the release of Brunson
“otherwise the sanctions will begin”.
Agathe Demarais, lead Turkey analyst at the Economist Intelligence Unit,
told AFP 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.
BSS/AFP/RY/1842 hrs