Published: Tue, August 14, 2018
Markets | By Josh Butler

Erdogan under pressure as Turkish lira plunges to record low

Erdogan under pressure as Turkish lira plunges to record low

The dispute between the two North Atlantic Treaty Organisation allies - which reached new intensity over the detention of an American pastor in Turkey - has hammered the lira and also raised questions over the future partnership between Washington and Ankara.

Erdoğan's ideological resistance to raising interest rates in a time of high inflation, and general mismanagement of the economy, have exacerbated the crisis, leading to fears that the lira could collapse and take much of Europe with it.

U.S. President Donald Trump has demanded the pastor's release and said he had authorized the doubling of tariffs on steel and aluminum imports from Turkey.

Overnight it fell to a new record low of 7.2362 to the dollar before recovering to around 6.8222 in early Asian trading, similar to its trading price on Friday.

The financial crisis in Turkey deepened Monday as the country's currency fell to a new record low and western leaders pressed Ankara to make economic and governmental reforms.

The currency, the lira, tumbled against the dollar last week when President Trump said he was doubling tariffs on imported Turkish metals to punish Erdogan for refusing to free an American pastor now on trial in Turkey.

In his words, Turkey is once again facing "political and bad game". "With God's permission we will overcome this", he added.

Erdogan appeared unworried by the punitive measures imposed by the United States, saying Turkey could turn to other partners and again terming the crisis an "economic war".

Erdogan renewed his call for Turks to sell dollars and buy lira to boost the currency, while telling business owners to not stockpile the American currency. The two countries already cooperate regarding Syria and have established close energy and trade ties.

Erdogan appeared to indicate that the entire alliance between Turkey - which joined North Atlantic Treaty Organisation in 1952 with strong American backing - and the United States was at stake.

"We are together in North Atlantic Treaty Organisation and then you seek to stab your strategic partner in the back".

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His comments echoed those made by Turkey's President Recep Tayyip Erdogan over the weekend.

"You dare to sacrifice 81-million (in) Turkey for a priest who is linked to terror groups?"

A delegation led by Turkish Deputy Foreign Minister Sedat Onal failed to secure a deal last Wednesday in talks in Washington on a number of issues including Brunson.

Several days later Erdogan accuses Washington of showing an "evangelist, Zionist mentality".

The day after the summit, Israel let the Turkish woman walk free, but Turkey merely moved Brunson from jail to house arrest, where he remains today.

Turkey has drafted an action plan and its institutions will start taking necessary steps Monday to ease financial markets' concerns, Finance Minister Berat Albayrak said Sunday, after the lira plunged last week.

But analysts told Reuters the plunge in Turkey's Lira looked certain to push the country's economy into recession and had the potential to trigger a banking crisis in the country.

Erdogan, who has called himself the "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.

People pass in front of into a jewellery shop where gold bangles are on display in Istanbul on August 8, 2018. He also took higher interest rates off the table and said Turkey wouldn't accept an global bailout.

The U.S. media said the decision was related to the current state of Turkish-American relations and the Brunson case.

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