Turkey currency crisis: Central bank announces measures to ensure financial stability; Erdogan terms lira crash 'political plot'

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 dispute with the United States. The Turkish lira has nosedived over the past week and tumbled another 7 percent on Monday as the central bank’s measures failed to restore investor confidence. [caption id=“attachment_4955781” align=“alignleft” width=“380”] File image of Turkey’s president Recep Tayyip Erdogan. AP[/caption] 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. The dispute with the US has centered on the continued detention of an American pastor who is on trial for espionage and terror-related charges. The US has responded by slapping financial sanctions on two ministers and later doubled steel and aluminum tariffs on Turkey. On Friday, that relentless slide turned into a crash and the lira dropped as much as 18 percent, hitting US and European stocks as investors took fright over banks’ exposure to Turkey. In its first statement since what was dubbed ‘Black Friday’ in Turkey, the central bank said it was ready to take ‘all necessary measures’ to ensure financial stability, promising to provide banks with ‘all the liquidity’ they need. The bank also revised reserve requirement ratios for banks, in a move also aimed at staving off any liquidity issues. However the statement gave no clear promise of rate hikes, which is what most economists and analysts say is needed to ease the crisis. In early European trade on Monday, the lira was trading at 6.6 to the dollar, a loss of another 3.3 percent on the day but recovering from even sharper losses in earlier Asian trade which it struck a record low of 7.2362 to the dollar. ‘Action plan ready’ Turkey’s finance minister said Sunday that the government has prepared ‘an action plan’ aimed at easing market concerns that have led to a slump in the value of the nation’s currency. In an interview with the newspaper Hurriyet, treasury and finance minister Berat Albayrak also said the government had no plans to seize foreign currency deposits or convert deposits to the Turkish lira. “As of Monday morning, our institutions will take the necessary actions and will share the necessary announcements with markets,” Albayrak was quoted as saying while adding that the plan would centre on “the state of our banks and the small and medium size enterprises” most affected by the lira’s plunge. “All our precautions and actions plans are ready,” he added, without elaborating. ‘Political plot’ against Turkey: Erdogan Erdogan on Sunday said that the crash of the lira was a ‘political plot’ and said his country would instead seek new markets and new allies. “The aim of the operation is to make Turkey surrender in all areas from finance to politics. We are once again facing a political, underhand plot. With God’s permission we will overcome this,” Erdogan told his party members. “We can only say ‘good-bye’ to anyone who sacrifices its strategic partnership and a half century alliance with a country of 81 million for the sake of relations with terror groups,” Erdogan said. He had also said that dollars, euros and gold were now ’the bullets, cannonballs and missiles of the economic war being waged against our country.’ World stocks hit one-month low World markets shuddered on Monday, as Turkey’s worsening currency crisis persuaded investors to dump equities and emerging markets and flee to safer assets such as government bonds and the dollar. “The plunge in the lira, which began in May, now looks certain to push the Turkish economy into recession, and it may well trigger a banking crisis,” said Andrew Kenningham, chief global economist at Capital Economics. The Indian rupee was also impacted by the Turkish crisis. The rupee extended its losses after opening at a record low of 69.47 against the dollar. In intra-day trade, it hit a fresh low of 69.62 against the greenback, tracking weakness in other emerging market currencies on concerns of a spill over from the Turkish crisis, according to Moneycontrol. The euro zone has also been hit. The euro fell to a one-year low against the dollar on Monday and sank to a one-year trough against the Swiss franc as well. It hit a 10-week low to the yen around 125.45. European stocks fell in early trade on Monday, with a pan-European index of shares down half a percent and the banking stock index as much as 1.2 percent lower. With inputs from agencies