Erdogan says attempts to exert economic pressure on Turkey futile

Marco Green
August 10, 2018

The lira plunged to as low as 6 against the U.S. dollar on Friday, a day after a Turkish delegation returned from talks in Washington with no apparent solutions to their simmering crisis.

President Recep Tayyip Erdogan has called on Turks to "have no worries" after the national currency lira hit a new record low amid political tensions with the United States.

Speaking to supporters in the Black Sea province of Rize late on Thursday, Erdogan brushed off concerns over the currency as campaigns against Turkey.

The Australian dollar AUD= - often viewed as a proxy for global risk appetite because of its commodity reliance - was the biggest faller among developed currencies, down 1 percent on the day.

"The rand and other EM currencies on the back foot as sentiment sours", Rand Merchant Bank analysts said in a note, adding that this was due to "geopolitical concerns and the negative impact of the US-China trade spat on global growth". "Consequently, the U.S. has imposed sanctions on Turkey's Interior Minister and Justice Minister with the possibility of further sanctions on the country".

"It seems highly unlikely that Erdogan will perform a dramatic U-turn on his monetary policy stance", Cheetham said.

"Furthermore, diplomatic tensions between the USA and Turkey are increasing as Turkey has refused to free the American priest, Andrew Brunson, who Erdogan claims to be a part of the failed coup attempt in 2016".

Turkish economist Korkut Boratav sees the need for urgent action: "The economy is fragile".

Investors are now awaiting the release of US consumer price inflation data for July for clues on the interest rate outlook and to gauge if new import tariffs were starting to have an impact.

"In any case, sanctions on the Turkish banking sector would be catastrophic as Turkey is dependent on capital inflows to finance its high current account deficit". "Selling more elsewhere would offset some of the hypothetical decline in eurozone exports to Turkey". "This is one of the most important principles of the free market economy - if you lend money, you take a risk and must accept the losses".

Other reports by Click Lancashire

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