The Turkish lira plunged on Friday, raising questions about the country's financial stability, as investors anxious about the president's unorthodox economic policies and a dispute with the United States that has led to sanctions.
U.S. President Donald Trump said he's authorized doubling some metals tariffs on Turkey, citing poor relations with the North Atlantic Treaty Organisation ally amid an escalating conflict over its detention of an American pastor.
Turkey had made important progress with other countries, he said, naming Iran, Russia, China and "some European countries", Erdogan said, adding that increasing production, exports and employment was the best response to the country's challenges.
"The backdrop to endemic lira weakness is of course the familiar one of an economy suffering rising inflation and a burgeoning balance of payments crisis alongside a central bank that has in effect been stripped of much of its independence since Erdogan was re-elected.in June", Ray Attrill, head of foreign exchange strategy at National Australia Bank, said in a note.
Treasury and Finance Minister Berat Albayrak says Turkey will execute a new economic model with all market stakeholders and also carry out tight monetary and fiscal policy. But this seems less likely as Erdogan and his mouthpieces in the media cast the United States' moves as some kind of epic battle to wreck Turkey, and Trump just gave them fresh ammunition.
Erdogan's characteristic defiance in the face of the crisis has further unnerved investors. On Thursday Ergodan said Turkey will withstand the economic pressure.
"If you have dollars, euros or gold under your pillow, go to banks to exchange them for Turkish lira". In his speech in the northeastern city of Bayburt, Erdogan added that he would decisively defend the country against economic attacks.
President TrumpDonald John TrumpKobach agrees to recuse himself from vote counting in Kansas GOP primary NFL players kneel during national anthem before first preseason game Schiff blasts GOP for Russian Federation probe conduct: "That's how you obstruct an investigation, not how you conduct one" MORE said Friday that the USA will also double tariffs on steel and aluminum imported from Turkey as relations between the North Atlantic Treaty Organisation allies worsen.
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In this file photo taken on July 11, 2018, US President Donald Trump (L) speaks with Turkey's President Recep Tayyip Erdogan (R) as they arrive for a North Atlantic Treaty Organisation summit at North Atlantic Treaty Organisation headquarters in Brussels.
"The dollar can not block our path. Don't worry", Erdogan assured the crowd.
That is unlikely to mollify investors who are also anxious by the growing dispute with the United States.
Turkey has arrested an American pastor and put him on trial for espionage and terror-related charges linked to a failed coup attempt in the country two years ago.
The currency has fallen 66 per cent since the start of the year, pushing up the cost of goods for Turkish people and shaking worldwide investors' confidence in the country.
"The basic reason the exchange rate has gone off the rails is that confidence in the management of the economy has disappeared both domestically and overseas", said Seyfettin Gursel, a prominent economist and a professor at Turkey's Bahcesehir University.
"First of all, confidence needs to be regained". Shares of European lenders also dropped, hit by concern about their Turkish exposure.
The lira, which had traded at 4 to the dollar as late as April, was being quoted at more than 7 to the dollar at one point Friday before rebounding to about 6.4. Hard currency debt issued by Turkish banks suffered similar falls.
The report said the situation is not yet seen as "critical" but Spain's BBVA, Italy's UniCredit and France's BNP Paribas are regarded as particularly exposed. And like with the lira, investors found new reasons on Friday to dump the currency.