Erdogan slams U.S. for preferring terrorists as partner

Mae Love
August 14, 2018

The lira currency, which has lost more than 40 percent against the USA 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.

Turkey's lira has bled value against the dollar, leaving the country under President Recep Tayyip Erdogan facing its most serious economic challenge since a financial crisis in 2001.

The U.S. dollar tumbled more than 5 percent against Turkish lira on Tuesday, falling to 6.4591 after opening the day at 6.8839.

But independent analysts say higher rates are needed urgently to stabilize the currency and Erdogan's hard line is one of the reasons investors are worrying. "This is called carrying out an operation against Turkey", he told reporters on Sunday, Aug. 12.

"I am specifically addressing our manufacturers: Do not rush to the banks to buy dollars. You should know that to keep this nation standing is. also the manufacturers' duty", he said.

"The fluctuation in the Turkish Lira is a plot against Turkey, but the Turkish people will not give in", the Turkish president defiantly said on Sunday in a live speech in northwestern province of Trabzon, sharply criticizing the United States of waging an "economic war" against his country.

Turkey's stock market has also fallen 17 percent, while government borrowing costs have risen to 18 percent a year. Meanwhile, inflation has hit 15 percent. Banks will be assessing their exposure to a weak Turkish lira.

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

President Trump last week imposed sanctions on Turkey over its refusal to release an imprisoned U.S. preacher.

Mr Brunson has been detained for almost two years, accused him of links to the outlawed Kurdistan Workers Party and the Gulenist movement, which Turkey blames for a failed coup in 2016.

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U.S. President Donald Trump announced a punitive doubling of tariff rates on steel and aluminum products from Turkey to 50 percent and 20 percent respectively.

What are officials doing about it?

They said that could be the first step toward tightening policy via an interest rate corridor, an instrument used in previous years, rather than increasing the benchmark rate. He also took higher interest rates off the table and said Turkey wouldn't accept an global bailout.

Early last month, he claimed the exclusive power to appoint the bankers that set interest rates - and to cement his control he has put his son-in-law in charge of economic policy.

Why is there so much fear of contagion?

Turkey's situation is among the most precarious among emerging markets because so much of its growth was fueled with debt in foreign currencies. "Ninety percent of public and private sector debt is denominated in foreign currencies", he said. The biggest loser was the Kosdaq index in Seoul, which fell as much as 3.7 per cent to a two-week low.

The US last week imposed sanctions on Turkey over its refusal to extradite a US preacher imprisoned in the country.

The cycle is, in the jargon, "late stage" and so any sign of danger will be an excuse to sell assets that appear at all risky.

However, the currencies of both countries, along with those of other emerging markets such as Indonesia, India and Russian Federation, have all found themselves under pressure, reflecting how contagion can spread through markets in the most unexpected of ways.

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