Turkish lira loses another 7% as economic crisis deepens
Turkey's central bank announced a series of measures on Monday to free up cash for banks as the country grapples with a currency crisis sparked by concerns over President Recep Tayyip Erdogan's economic policies and a trade and diplomatic dispute with the United States.
The Turkish lira has nosedived over the past week and tumbled another 7 per cent on Monday as the central bank's measures failed to restore investor confidence.
The currency hit a record low of 7.23 per dollar late on Sunday after Erdogan, in a series of speeches over the week, showed no sign of backing down in the standoff against the United States, a NATO ally.
Erdogan ruled out the possibility of higher interest rates, which economists say are needed to stabilize the currency. And he threatened to seek new alliances and partners and warned of drastic measures if businesses withdraw foreign currency from banks.
Simon Derrick, chief currency strategist at BNY Mellon, said that in the absence of a decisive rate hike, "it is...hard to look at these announcements as being anything more than temporary calming measures, rather than solutions to the problems at hand."
The lira recovered some of its losses after Berat Albayrak, the country's finance chief — and Erdogan's son-in-law — said late Sunday that the government had readied an "action plan" to ease market concerns, without elaborating. He also said the government had no plans to seize foreign currency deposits or convert deposits to the Turkish lira.
On Monday, the Central Bank said in a statement a series of steps to "provide all the liquidity the banks need."
The moves are meant to grease the financial system, ease any worries about trouble at banks and keep them providing loans to people and businesses.
In times of high uncertainty, banks tend to shy away from lending to each other. A so-called credit crunch, a lack of daily liquidity, can cause a bank to collapse.
The lira has dropped some 45 per cent this year.
The dispute with the U.S. has centred on the continued detention of an American pastor who is on trial for espionage and terror-related charges. The U.S. has responded by slapping financial sanctions on two ministers and later doubled steel and aluminum tariffs on Turkey.