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

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.

‘Get prices down’ Trump tells OPEC

Updated 20 September 2018

‘Get prices down’ Trump tells OPEC

  • Trump highlights US security role in region
  • Comments come ahead of oil producers meeting in Algeria

LONDON: US president Donald Trump urged OPEC to lower crude prices on Thursday while reminding Mideast oil exporters of US security support.
He made his remarks on Twitter ahead of a keenly awaited meeting of OPEC countries and its allies in Algiers this weekend as pressure mounts on them to prevent a spike in prices caused by the reimposition of oil sanctions on Iran.
“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices!” he tweeted.
“We will remember. The OPEC monopoly must get prices down now!”
Despite the threat, the group and its allies are unlikely to agree to an official increase in output, Reuters reported on Thursday, citing OPEC sources.
In June they agreed to increase production by about one million barrels per day (bpd). That decision was was spurred by a recovery in oil prices, in part caused by OPEC and its partners agreeing to lower production since 2017.
Known as OPEC+, the group of oil producers which includes Russia are due to meet on Sunday in Algiers to look at how to allocate the additional one million bpd within its quote a framework.
OPEC sources told Reuters that there was no immediate plan for any official action as such a move would require OPEC to hold what it calls an extraordinary meeting, which is not on the table.
Oil prices slipped after Trumps remarks, with Brent crude shedding 40 cents to $79 a barrel in early afternoon trade in London while US light crude was unchanged at about $71.12.
Brent had been trading at around $80 on expectations that global supplies would come under pressure from the introduction of US sanctions on Iranian crude exports on Nov. 4.
Some countries has already started to halt imports from Tehran ahead of that deadline, leading analysts to speculate about how much spare capacity there is in the Middle East to compensate for the loss of Iranian exports as well as how much of that spare capacity can be easily brought online after years of under-investment in the industry.
Analysts expect oil to trend higher and through the $80 barrier as the deadline for US sanctions approaches.
“Brent is definitely fighting the $80 line, wanting to break above,” said SEB Markets chief commodities analyst Bjarne Schieldrop, Reuters reported. “But this is likely going to break very soon.”