The Central Bank of Turkey (TCMB) on Monday announced it will provide all required liquidity to ensure financial stability after the collapse of the Turkish lira against the US dollar. The crisis has rattled markets around the world. The bank’s announcement came after a widening diplomatic spat with the US. Investors were not reassured. Although the Turkish lira rose slightly, it still hit a new record low against the dollar. The TCMB explained in a press release on its official website that it was set to reduce the limits of foreign exchange reserves allowed to Turkish banks in order to withdraw liras from the market, provide liquidity and stabilize the value of the Turkish currency. It pointed out that the “discount rates for collaterals against Turkish lira transactions will be revised based on type and maturity.” Before the bank’s announcement, the Turkish lira was down 9 per cent before recovering slightly to be 6 per cent lower in late morning trading in Turkey.
Following a diplomatic spat with Washington and other problems plaguing the economy, Turlish lira continued its fall as fear among investors spiked. In line with the fall in lira, the Indian rupee also hit a fresh low today. The Indian currency plunged as much as 1.1 percent to 69.6150 versus the dollar in early trading before paring losses. US President Donald Trump said on Friday he will authorize higher tariffs on Turkish steel and aluminium. That came after Turkey put an American pastor on trial on spying charges. Erdogan promised Sunday his government will take unspecified “necessary actions” to calm markets. Erdogan appeared to indicate that the entire alliance between Turkey — which joined NATO in 1952 with strong American backing — and Washington was at stake. Here are five things all must know.
Turkey currency Lira plunges
Turkey’s currency nosedived again on Monday with a fresh 11 per cent plunge as fears deepened about the country’s ability to deal with a crisis that has rattled markets around the world. It had plummeted more than 20 per cent last week as a political clash with the US intensified and investors fretted about the Turkish government’s lack of action to tackle the problems plaguing its economy. The lira is now down around 45 per cent against the dollar since the start of the year, making it far harder for Turkish companies to pay back loans they have taken out in the US currency. Emerging market currencies suffered a renewed bout of selling.
Trump hikes tariffs on steel and aluminium imports from Turkey
Trump on Friday announced the United States was doubling tariffs on steel and aluminium imports from Turkey, saying relations with Ankara were “not good at this time.” Trump said the tariffs on aluminium imports would be increased to 20 percent and those on steel to 50 percent as the Turkish lira “slides rapidly downward against our very strong Dollar!” Trump made the 50 percent steel tariff official with a presidential proclamation Friday evening. The United States is the biggest destination for Turkish steel exports with 11 percent of the Turkish export volume. Last week, a Turkish delegation went to Washington and met U.S. counterparts but there was no breakthrough. 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.
Turkey heading towards bankruptcy?
The lira’s plunge is one of the most serious economic crises that Erdogan has faced since coming to power in 2003 in the wake of a financial crisis in 2001 that brought the economy to near meltdown. The Turkish economy is not in a crisis or going bankrupt and the fluctuations in the foreign exchange rate are the ‘missiles’ of an economic war waged against Turkey, President Tayyip Erdogan said on Saturday. 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. Markets are deeply concerned over the direction of domestic economic policy under Erdogan with inflation at nearly 16 percent but the central bank reluctant to raise rates in response.
Turkey’s problem with US
Turkey has arrested an American pastor and put him on trial for espionage and terror-related charges linked to a failed coup attempt in the country two years ago. Washington in response sanctioned two Turkish ministers and threatened more. After Brunson had been in jail for almost 20 months, a court in July ordered him to be moved to house arrest. Since then U.S. President Donald Trump and Vice President Mike Pence have called for his release.
Turkey’s row with the United States has further weighed on the lira. An important emerging market, Turkey borders Iran, Iraq and Syria and has been mostly pro-Western for decades. Financial upheaval risks further destabilizing an already volatile region. Erdogan has cast the recent slide in the lira as a war and without naming countries said supporters of a failed military coup two years ago, which Ankara says was organized by a U.S.-based Muslim cleric, were attacking Turkey in new ways since his re-election two months ago.
Will Turkey leave NATO?
The two NATO allies have been at odds over a wide range of issues: diverging interests in Syria, Ankara’s ambition to buy Russian defence systems and the case of Andrew Brunson, an evangelical pastor on trial in Turkey. Turkey, home to the Incirlik air base which is used by U.S. forces in the Middle East, has been a NATO member since the 1950s. It is host to a critical part of the Western alliance’s missile defence system again Iran.
In a separate opinion piece in the pro-government newspaper Daily Sabah, Erdogan’s spokesman Ibrahim Kalin said Turkey’s efforts to solve the crisis with diplomatic methods have been dismissed by the Trump administration, warning that Washington might completely lose Ankara as an ally. In an opinion piece in the New York Times, he warned the U.S. that Ankara had other alternatives as allies.
“Before it is too late, Washington must give up the misguided notion that our relationship can be asymmetrical and come to terms with the fact that Turkey has alternatives. Failure to reverse this trend of unilateralism and disrespect will require us to start looking for new friends and allies,” Erdogan said. Turkey later said Erdogan had held a phone call with Russian President Vladimir Putin to discuss economic ties. It did not disclose details but suggests Turkey might gravitate further away from its NATO allies toward cooperation with Russia, whose relations with the West are at their lowest since the Cold War.