Stocks close lower amid Turkish currency crisis

Jeannie Matthews
August 14, 2018

Turkey's 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 Turkish Lira suffered its worst one-day loss in a decade after President Donald Trump announced the United States would hike metals tariffs, losing about 20% of its value against the USA dollar, prompting investor confidence to slump.

Presidential Communications Director Fahrettin Altun described the rumors as "disinformation campaign" based on a statement by President Recep Tayyip Erdoğan, who had said on August 12 that "You must know that keeping this nation on its feet is not just our duty but also the duty of industrialists and merchants".

The Turkish leader has been sanguine over the punitive measures announced by the U.S., saying that while Turkey's relationship with Washington is at stake it will look for other partners.

The two North Atlantic Treaty Organisation allies have been at odds over Syria and Turkey's ambition to buy Russian defense systems, but anger has flared up recently over evangelical pastor Andrew Brunson. He asserted that Turkey was "under siege" by "global bullies" eyeing Turkey's hard-fought gains. Earlier, the central bank pledged to provide liquidity and cut lira and foreign currency reserve requirements for Turkish banks.

The bank later moved to simplify its monetary policy tools and in May announced that process was complete and that the one-week repo rate would be its policy rate.

The bank, however, gave no clear promise of raising interest rates, which is seen by most economists as necessary to resolve the crisis. Mr Erdogan favours lowering borrowing costs to fuel credit growth and economic expansion.

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"A normalisation of relations with the United States could also reduce the amount of legwork that the central bank will have to do to control the economic situation, but this is unlikely to happen at the moment", she said.

The Central Bank of the Republic of Turkey (TCMB) has outlined a range of measures to bolster liquidity and support the financial system.

President Tayyip Erdogan tried to reassure supporters in a rally amid Turkey's currency crash. After several hours of volatile trading, the Turkish lira has settled around 6.87 lira to the USA dollar. The dollar rallied, and Treasury yields inched higher. Last year, the same court indicted Turkish Iranian gold trader Reza Zarrab and former Turkish Economy Minister Zafer Cagalayan for their roles in the illicit dealings. But in what now seems like a gross miscalculation, Erdogan held out for more. It confirmed that Kuwait's Finance Minister Nayef Al-Hajraf met with Albayrak at Kuwait International Airport on Sunday evening. "Exit of funds from the Turkish financial markets can be an opportunity for the Egyptian economy as a competitive market in the same region". An increase in contracted customers should help insulate the company from residential property market weakness in fiscal year 2019, the broker believes. "Our currency was directly targeted by the American president", he added.

"Turkey's friction with the weighing on the lira, and is unlikely to improve anytime soon", said Takashi Kudo, head of financial markets research at Fujitomi Co in Tokyo.

So far first blood to the United States.

"They tell us to release the priest by Wednesday 6:00 p.m., otherwise the sanctions will begin", said Erdogan, adding Turkey was not a country to agree to such requests.

U.S. State Department spokesperson Heather Nauert said on Thursday that although the two sides "had wide-ranging meetings at the State Department and with other departments here in Washington", the U.S. side "would define progress as Pastor Brunson being brought home".

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