Turkey's lira crisis: How bad can it get?

11 August, 2018, 13:54 | Author: Lora Ball
  • A vendor gets a five Euro bank note from a customer at the central market in Athens

Trump said via a tweet that the tariff on aluminium imports will be increased to 20 per cent and the tariff on steel imports will be raised to 50 per cent as the Turkish Lira "slides rapidly downward against our very strong Dollar!"

The United States is the biggest destination for Turkish steel exports with 11% of the Turkish export volume.

"At a time when evil continues to lurk around the world, unilateral actions against Turkey by the United States, our ally of decades, will only serve to undermine American interests and security", Erdogan said in the article.

The new duties on Turkey are double the level that Trump imposed in March on steel and aluminium imports from a range of countries.

If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks.

Earlier on Friday the lira plunged as much as 14 percent on as worries about Erdogan's influence over monetary policy and worsening USA relations snowballed into a market panic that also hit shares of European banks.

In this file photo taken on July 11, 2018, US President Donald Trump (L) speaks with Turkey's President Recep Tayyip Erdogan (R) as they arrive for a North Atlantic Treaty Organisation summit at North Atlantic Treaty Organisation headquarters in Brussels.

Turkey's economic woes worsened after US President Donald Trump escalated a feud with Turkey by doubling tariffs on metals imports.

Mr Erdogan also remained defiant, as he urged the Turkish people to exchange foreign currency or gold for lira. The U.S. recently hit two high-ranking Turkish officials with sanctions after the Turkish government refused to release imprisoned Christian pastor Andrew Brunson.

President Trump called Brunson an "innocent man of faith" who should be released immediately.

More news: Chinese exports accelerate as USA prepares new tariffs

The US may also be stuck on Turkish demands to waive or minimise a treasury fine on Halkbank, a Turkish state bank involved in a court case over violating US sanctions on Iran.

Adding to investors' concerns, Erdogan pledged a continuation of his debt-fueled construction policy to boost the economy, which is blamed for Turkey's rampant inflation and has added to currency weakness. "Making a speech like Albayrak's in the midst of a currency free fall without a single concrete measure shows utter lack of comprehension about what's happening and what's required", tweeted Harvard economist Dani Rodrik.

In the New York Times, Erdogan warned Washington not to risk relations with Ankara, saying otherwise his country would look for "new friends and allies".

Solving Turkey's tensions with the United States would also likely go some way to quell nerves. Turkish President Recep Tayyip Erdogan addressed supporters Friday in the provincial city of Bayburt.

The lira fell 7% against the dollar to 5.9655 on Friday morning after hitting an all-time low earlier in the session.

As you can imagine, more people are reading The Jerusalem Post than ever before.

The latest escalation came as Turkey's Economy Minister Berat Albayrak, who is Erdogan's son-in-law and a trusted lieutenant, unveiled what was touted as a new economic plan, pledging Central Bank independence, tighter budget discipline and sustainable and healthy growth.

The Turkish lira has fallen more than 10% against the dollar after a Turkish delegation in Washington failed to prevent USA sanctions.

Yet even US firms that have disclosed relatively little exposure to Turkey fell as that country's crisis escalated Friday, with Citigroup Inc. down the most since May.

"While Turkey's fundamental challenges are numerous, there are plenty of straightforward textbook solutions.an aggressive interest rate hike from the Central Bank would be a good start, something of the order of +1,000bp that Argentina delivered back in May would be appropriate at this juncture".

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