Monday, 20 August, 2018

Economic turmoil hits Turkey, US bank stocks react

Greek lieutenant Aggelos Mitretodis and noncommissioned officer Dimitros Kouklatzis were arrested in Turkey Greek lieutenant Aggelos Mitretodis and noncommissioned officer Dimitros Kouklatzis were arrested in Turkey
Lloyd Bates | 11 August, 2018, 20:39

Turkey's president declared today that "we will not lose the economic war", but Recep Tayyip Erdogan is certainly not winning it. Prospects grew even dimmer after Donald Trump literally doubled down on sanctions earlier announced against Turkey, in response to a failed deal to free Pastor Andrew Brunson and Erdogan's lurch towards Islamist dictatorship.

The country's economy was already in trouble, but the lira's selloff was heavily compounded by Donald Trump's announcement that he was doubling tariffs on Turkish steel and aluminum.

"Our relations with Turkey are not good at this time!" he wrote. In addition to the steep drop in the Turkish Lira, which effectively reduces the impact of the tariffs, the US has so far been unsuccessful in persuading Turkish President Recep Tayyip Erdoğan to release USA pastor Andrew Brunson. As the currency drops, Turkish companies and households with debt in foreign currencies see their debts expand.

Investors in Turkey are also anxious about President Erdogan's interference in the country's central bank.

The slump is attributed to the tensions with the U.S. and concerns about President Recep Tayyip Erdogan's control of monetary policy.

If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks. "This is a national, domestic battle", he said.

"President Erdogan's strengthened powers under the new presidential system have made it increasingly uncertain whether policymakers will be able to act to stabilise the economy", said William Jackson, chief emerging markets economist at Capital Economics in London.

The lira tumbled 14 per cent in one day, to 6.51 per dollar, a massive move for a currency that will make the Turkish poorer and further erode global investors' confidence in the country.

The currency slid almost 8 percent in relation to the dollar to a record low of 6.59 shortly after Trump announced the increase on metals duties on Twitter.

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But within days, Trump himself backed away from the deal, saying talks would "probably have to use a different structure". The two sides held three rounds of formal talks, beginning with a delegation to Beijing led by Mnuchin in May.

Axios reported that the Turkey is trying to lessen their dependence on Russian Federation, and the increased sanctions will make their goal more challenging to reach.

Erdogan, a self-described "enemy of interest rates", wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing.

Turkish media covered the latest tensions between Ankara and Washington, with pro-government daily Sabah saying on its front page that "the currency attack" was no different from the attempted July 2016 coup.

The new set of economic steps are aimed at securing an economic growth of 3-4 percent in 2019, and decreasing the inflation rate to single digits, the ministry said in a press release on August 9.

Erdogan said the two countries have been strategic partners and North Atlantic Treaty Organisation allies for six decades and reminded Washington that Turkey and the U.S. "stood shoulder to shoulder against common challenges during the Cold War and its aftermath". Rate increases are the central bank's main tool to support the currency and fight inflation. "Don't worry", Erdogan told a crowd in the northeastern city of Bayburt.

The Turkish lira fell around 16% against the U.S. dollar on the day, from $0.18 to $0.15 as of 3pm BST.

New Finance Minister Berat Albayrak - Erdogan's son-in-law - rolled out the government's new economic plan on Friday, promising central bank independence and tighter budget discipline, but giving few details to reassure investors.

Without naming any country, Erdogan said that those - who stand against Turkey for the sake of small calculations - would pay the price.

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