Erdogan under pressure as Turkish lira plunges to record low

President Erdogan has defied market calls for an interest rate increase. (AFP/ Turkish presidential press service)
Updated 15 August 2018
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Erdogan under pressure as Turkish lira plunges to record low

  • The lira dived to record lows of 7.24 to the dollar and 8.12 against the euro very early on Monday
  • The lira had tumbled about 16 percent against the dollar on Friday

NEW YORK: Turkey’s President Recep Tayyip Erdogan came under renewed pressure on Monday to reverse his economic policies as the troubled lira tumbled to record lows against the euro and dollar.

The US dollar, Japanese yen and the Swiss franc have been the preferred safe havens for scared investors.

The lira dived to record lows of 7.24 to the dollar and 8.12 against the euro very early in the day, then recovered somewhat after Turkey’s central bank announced a raft of measures aimed at calming markets, only to slip back again late in the session.

“The attempts by Turkey to halt the demise of the lira and the country’s soaring bond yields have proven inadequate thus far,” said David Cheetham, chief market analyst at XTB.

“Investors remained fearful on Monday over the Turkish lira’s precipitous plunge — and the concerns that a financial crisis in the country would ripple through the rest of Europe,” Spreadex analyst Connor Campbell said.

Sharp depreciation

“So far the impact of the lira crash has been limited in Europe and the rest of the world,” said Agathe Demarais, Turkey analyst at The Economist Intelligence Unit.

“However, within a few months Western banks that have strong ties with Turkey will feel the impact of the crisis as Turkish corporates will struggle to repay debt in foreign currency.

“The sharp depreciation of the lira has almost doubled the local currency value of external debt repayments since the start of the year.” 

The lira had tumbled about 16 percent against the dollar on Friday, after US President Donald Trump doubled tariffs on steel and aluminum from Turkey.

The crisis has been sparked by a series of issues including a faltering economy — Erdogan has defied market calls for an interest rate increase — and tensions with the United States, which has hit Turkey with sanctions over its detention of an American pastor.

‘Black Friday’

In its first statement since what was dubbed “Black Friday” in Turkey, the nation’s central bank said on Monday it was ready to take “all necessary measures” to ensure financial stability, promising to provide banks with “all the liquidity” they need.

The central bank also lowered reserve requirement ratios for banks, in a move also aimed at staving off any liquidity issues.

But the statement gave no clear promise of rate increases, which is what most economists say is needed.


Volvo quits Iran as US sanctions pressure mounts

Updated 47 min 29 sec ago
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Volvo quits Iran as US sanctions pressure mounts

  • Volvo cannot get paid in Iran due to US sanctions
  • Plans were for at least 5,000 trucks to be assembled in Iran Saipa Diesel says zero Volvo trucks assembled since May

STOCKHOLM, Sweden: Swedish truck maker AB Volvo has stopped assembling trucks in Iran because US sanctions are preventing it from being paid, a spokesman for the company said on Monday.
The sanctions against Iran, reimposed on Aug. 6 by US President Donald Trump after his decision to pull out of a nuclear deal with Tehran, have forced companies across Europe to reconsider their investments there.
Volvo spokesman Fredrik Ivarsson said the trucks group could no longer get paid for any parts it shipped and had therefore decided not to operate in Iran in another blow to the country’s car industry, which unlike the energy and banking sectors, had managed to sign contracts with top European firms.
“With all these sanctions and everything that the United States put (in place) ... the bank system doesn’t work in Iran. We can’t get paid ... So for now we don’t have any business (in Iran),” Ivarsson told Reuters by telephone.
Before the sanctions were reimposed, Volvo had expressed an ambition for Iran to become its main export hub for the Gulf region and North Africa markets.
The European Union has implemented a law to shield its companies, but the sanctions have deterred banks from doing business with Iranian firms as Washington can cut any that facilitate such transactions off from the US financial system.
Volvo was working with Saipa Diesel, part of Iran’s second-largest automaker SAIPA, which was assembling the Swedish firm’s heavy-duty trucks from kits shipped to Iran.
Ivarsson said Volvo had no active orders in Iran as of Monday.
A commercial department manager at Saipa Diesel confirmed that sanctions had prompted Volvo Trucks to terminate their partnership agreement.
“They have decided that due to the sanction on Iran, from (May) they couldn’t cooperate with us. We had some renovation planned in Iran for a new plant but they refused to work with us,” said the manager, who declined to be identified.
More than 3,500 Volvo trucks had been assembled by Saipa Diesel in the year to May, but none had been assembled in this financial year although the original deal was for at least 5,000 trucks, the manager told Reuters.
Swedish truckmaker Scania, which is owned by Volkswagen , said it had canceled all orders that it could not deliver by mid-August due to sanctions, while French carmaker PSA Group began to suspend its joint venture activities in Iran in June.
Germany’s Daimler has said it is closely monitoring any further developments, while carmaker Volkswagen has rejected a report that suggested it had decided against doing business in Iran.