Published: Tue, August 14, 2018
Finance | By Loren Pratt

Turkey crisis deepens at lira hits new low

Turkey crisis deepens at lira hits new low

It had already fallen more than 40% in the past year.

The lira currency, which has lost more than 40 percent against the US dollar this year, pulled back from a record low of 7.24 earlier on Monday after the central bank pledged to provide liquidity, but it remained under selling pressure and its meltdown continued to rattle global markets.

Stock markets in Asia fell on Monday as investor concern over Turkey's currency crisis mounted.

He dismissed any suggestions that Turkey might intervene in dollar-denominated bank accounts, saying any seizure or conversion of those deposits into lira was out of the question.

His assurance came after Turkey's president blamed the lira's plunge on a plot against the country.

Mr Erdogan said: "What is the reason for all this storm in a teacup?"

On Friday, Erdogan called on its citizens to convert their hard currency and gold into lira to prop up the plunging currency with a "domestic and national stance".

"I'm so regretful I didn't buy dollars, I feel like a fool", said Mr Bulent Ucuran, a 36-year-old shopkeeper. "You should know that to keep this nation standing is. also the manufacturers' duty", he said.

Turkish President Recep Tayyip Erdogan said on Saturday that his country was now looking to form alternative economic alliances from "Iran, to Russian Federation, to China and some European countries", after the U.S. "upset and annoyed" its North Atlantic Treaty Organisation ally with sanctions that greatly exacerbated the lira's existing troubles.

The falling Lira would hit Turkish companies that have to repay foreign currency debt estimated at more than 200 billion USA dollars. Meanwhile, inflation has hit 15%.

Turkey vowed retaliation "without delay" and warned the move would further harm relations between the two allies.

The dispute centres on Turkey's refusal to release USA pastor Andrew Brunson.

Brunson, who has lived in Turkey for 20 years and has been detained since October 2016, is accused of assisting Gulen's network and the outlawed Kurdistan Workers Party (PKK). It tied the news reports to "forces behind the July 15 coup attempt", referring to a 2016 failed putsch that Turkey blames on a US -based Islamic cleric.

What are officials doing about it?

"If they can't get their money back, they will cut down on lending to other people", said Fariborz Ghadar, director of Penn State's Center for Global Business studies.

Erdogan's comments on interest rates - and his recent appointment of his son-in-law as finance minister - have heightened perceptions that the central bank is not independent.

Erdogan also ruled out the possibility of higher interest rates, as they can slow economic growth.

Why is there so much fear of contagion?

The US dollar is the strongest it's been in more than a year, which could eventually create problems for US companies that make a lot of sales overseas. The eurozone's chief financial watchdog has become anxious about the exposure of major European lenders - mainly Spanish and French banks - to Turkish debt.

Europe was marked flat to firmer, with eyes still on European bank fallout from the Turkish crisis but also on Italy's fragile government bond market which has been undermined again by the generalized retreat from risk assets and nerves about the new Italian coalition government's budget talks.

Such sell-offs are not uncommon during the summer - there was one this time last year prompted by concerns over North Korea - but investors are, nonetheless, very alert to the fact that most stock markets in western countries are now in their tenth year of the current bull run that began in March 2009.

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