Turkey's lira crisis: 'economic war' sees Erdoğan look east for new allies

Turkish President Tayyip Erdogan addresses members of his ruling AK Party in Rize

Turkish President Tayyip Erdogan addresses members of his ruling AK Party in Rize

Market depth and price formations will be monitored by the Central Bank closely, which will take all necessary measures to protect financial stability, if needed, said the bank.

The lira has lost more than 40 per cent against the dollar this year, largely over worries about President Recep Tayyip Erdogan's influence over the economy, his repeated calls for lower interest rates, and worsening ties with the United States.

Asia share markets skidded and the euro hit one-year lows on Monday as a renewed rout in the Turkish lira drove demand for safe harbors, including the USA dollar, Swiss franc and yen. Shares in Europe's major banks also lost ground.

Turkey's central bank on Monday (Aug 13) failed to halt the precipitous plunge of the lira with a raft of measures aimed at soothing markets, as President Recep Tayyip Erdogan accused the United States of seeking to stab its North Atlantic Treaty Organisation ally "in the back".

In May, the central bank raised interest rates to support the lira in an emergency move, but it did not tighten monetary policy at its last meeting.

The Central Bank also lowered Turkish lira reserve requirement ratios by 250 basis points for all maturity brackets, and reserve requirement ratios for non-core FX liabilities by 400 basis points for up to three-year maturities.

"With this revision, approximately 10 billion Turkish liras ($1.46 billion), $6 billion, and $3 billion equivalent of gold liquidity will be provided to the financial system", it added. It also pledged to provide "all the liquidity banks need". Not only would this help contain inflation but it would also help support the lira.

Turkey's banking watchdog BBDK in a statement said it was limiting banks' foreign exchange swap transactions.

The currency tumbled to a record low of around 7.20 lira against the dollar late on Sunday after Erdogan warned of drastic measures if businesses withdraw foreign currency from banks.

Against the us dollar, the euro touched its lowest since July 2017 at $1.13715.




Capilano Honey soared 25.4 per cent to $19.62 after a takeover offer at $20.06 in cash for the honey maker from Albert Tse's Sydney and Hong Kong-based Wattle Hill and ROC Capital, equivalent to nearly $200 million.

The lira recovered some of its losses after Berat Albayrak, the country's finance chief - and Mr Erdogan's son-in-law - said the government had readied an "action plan" to ease market concerns. The ripple effects more generally were felt in bids for "safety" plays - U.S. Treasuries, German Bunds, Japan's yen and the dollar more broadly.

Market analysts broadly welcomed his comments but said investors wanted to see action.

There were broad declines across equities on Monday and a selloff in developing-nation currencies as the ongoing economic crisis in Turkey bled into global markets.

Countries that, like Turkey, have large amounts of debt denominated in foreign currencies are especially in the firing line.

The underlying economic cause for the crisis is simply a lack of confidence in Turkey's economy.

In the interview with Hurriyet newspaper, Albayrak described the lira's weakness as "an attack" - echoing Erdogan, who is his father-in-law.

Erdogan, who has called himself the "enemy of interest rates", wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing.

President Tayyip Erdogan on Monday accused "economic terrorists" of plotting to harm Turkey by spreading false reports and said they would face the full force of the law, as authorities launched investigations of those suspected of involvement.

"What is the reason for all this storm in a tea cup?"

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