TROUBLE IN TURKEY: Currency PLUNGES 20% After Trump DOUBLES Metal Tariff

Marco Green
August 11, 2018

The fall has come as Turkish President Recep Tayyip Erdogan has moved to take greater control of monetary policy.

The lira tumbled about 10 percent on Friday to another record low as investors anxious about Erdogan's unorthodox economic policies and US sanctions.

And so he announced he is going to double the steel and aluminum tariffs on them to make up for the fact "their currency" has slid so "rapidly downward against our very strong Dollar!"

That is spreading fear of an impact on other economies and markets - bank shares across the continent fell and the euro slipped to its lowest since July 2017 as the Financial Times quoted sources as saying the European Central Bank was concerned about European banks' exposure to Turkey. It came as a Turkish delegation returned from the United States, reporting no progress on negotiations involving a USA pastor imprisoned in Turkey. U.S. President Donald Trump introduced a round of sanctions on August 1, preventing the Turkish justice an interior ministries from doing business with U.S. businesses.

Russia's dollar-traded RTS index plunged over three percent, Brazil Bovespa index was losing 2.3 percent, and the Turkish Borsa Istanbul index saw a 5.4 percent sell-off. As the lira falls in value, the debt becomes harder to pay. "This is a national, domestic battle", he told a crowd in the northeastern city of Bayburt.

The mere fact that the US would impose sanctions on Turkey - a stalwart North Atlantic Treaty Organisation ally for decades during the Cold War - has increased uncertainty about the future in Turkey.

That is unlikely to mollify investors who are also anxious by a growing dispute with the United States.

Erdogan on Thursday portrayed the run on his currency as a "campaign" to harm Turkey and called on people not to worry.

"The basic reason the exchange rate has gone off the rails is that confidence in the management of the economy has disappeared both domestically and overseas", said Seyfettin Gursel, a prominent economist and a professor at Turkey's Bahcesehir University.

"First of all, confidence needs to be regained".

The news comes as tensions between the USA and Turkey continue to grow over the North Atlantic Treaty Organisation ally's continued detainment of Pastor Andrew Brunson.

Erdogan enjoys the support of many Turks even though food, rent and fuel prices have all surged.

In response to the economic problems, Finance and Treasury Minister Berat Albayrak, who is Erdogan's son-in-law, outlined a "new economic model" on Friday.

"It is expected that the current account deficit would be balanced at around 4 percent", the ministry said, adding that a saving program in the public sector, which was launched this year, will continue in the medium-term.

This did nothing to revive the currency.

"We are entering into a balance-of-payment crisis here", said Cristian Maggio, head of emerging market strategy at TD Securities in London. "Albayrak's plan was uninspiring at best". Erdogan has been putting pressure on the central bank to not raise interest rates in order to keep fueling economic growth. "It won't stop unless the central bank steps in and hikes big time".

Other reports by Click Lancashire

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