Turkish lira pulls back from record low, action plan awaited

13 August, 2018, 12:26 | Author: Sheila Harris
  • European banks

The Australian sharemarket closed in the red and the dollar hit a fresh 18-month low as the Turkish lira led a rout in emerging market currencies and concerns mounted over European Bank exposure to Turkey. Even if Washington and Ankara can resolve their immediate problems - such as the recent arrest of USA citizens in Turkey - the numerous, and multiplying, issues on which Turkey and the United States now disagree could be their relationship's undoing.

As Turkey's lira crisis deepens, contagion across all emerging markets has widened - dragging in the likes of South Africa's rand, Argentina and Mexico's pesos, Russia's rouble and emerging market stock markets around the globe.

The crisis has been sparked by a series of issues including a faltering economy - the central bank has defied market calls for rate hikes - and tensions with the USA, which has hit Turkey with sanctions over its detention of an American pastor.

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 and cut reserve requirements for Turkish banks, but its meltdown continued to rattle global markets.

"From Monday morning onwards our institutions will take the necessary steps and will share the announcements with the market", he said, without giving details.

Turkey's Finance Minister Berat Albayrak late Sunday said Ankara was planning to roll out an "action plan" on Monday in response to the crisis.

President Erdogan of Turkey accused the USA last night of plotting to destabilise the country and pledged to search for new worldwide allies and trading partners as relations between the North Atlantic Treaty Organisation allies soured further.

'The aim of the operation is to make Turkey surrender in all areas from finance to politics, ' Erdogan told his party members in the Black Sea city of Trabzon.

Pressured by USA sanctions and a new constitutional order that concentrates power in Erdogan's hands, Turkey's central bank and finance ministry did little more than monitor the worst market beating since the rout that took out much of the country's financial sector in 2001. With God's permission we will overcome this'.

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On Friday, US President Donald Trump announced to double steel and aluminum tariffs on Turkey, saying relations between Washington and Ankara "not good" as tensions mount between the two countries.

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.

The Turkish strongman also lashed out at interest rates, denounced them as a "tool of exploitation" which should be kept as low as possible. It also said it would take all necessary measures to maintain financial stability.

Mr Erdogan appeared unworried by the punitive measures imposed by the USA, saying Turkey could turn to other partners and again terming the crisis an "economic war". There were also sharp losses in Taipei, Manila and Jakarta, which dived 3.3 per cent after Indonesia reported on Friday its biggest current account deficit in about four years. "You dare to sacrifice 81-million (in) Turkey for a priest who is linked to terror groups?"

Brunson was arrested in October 2016 on charges of being an American spy and terrorist complicit in the failed coup attempt against Erdogan in the summer of 2016.

President Recep Tayyip Erdogan on Sunday criticised the United States, saying Turkey would say "bye bye" to those, who prefer terrorists to their strategic partner.

Last week, a Turkish delegation went to Washington and met American counterparts but there was no breakthrough.

Speaking hours after Iran, also under United States sanctions, offered Turkey its support, Mr Erdogan told a crowd in the Black Sea city of Trabzon that USA sanctions were part of an "economic war" against the country.

In an op-ed published in New York Times, Erdogan warned Washington not to risk its relations with Ankara, saying otherwise it would look for "new friends and allies". "What happened? Immediately, we have imposed the same sanctions on their ministers", Mr. Erdogan said.


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