Published: Sat, August 11, 2018
Business | By Eloise Houston

Turkey's Erdogan calls on Turks to buy lira for 'national battle'

Turkey's Erdogan calls on Turks to buy lira for 'national battle'

The lira tumbled 13% in one day, to 6.51 per U.S. dollar, a massive move for a currency that will make the Turkish poorer and further shake global investors' confidence in the country.

Here is a look at the situation - what caused the plunge and what impact it might have. Together, that can weigh on the currency.

The lira "is falling so fast that a parachute is the first thing that comes to mind to prevent the lira smashing into the ground", Bart Hordijk, a market analyst at Monex Europe, told Business Insider.

Turkish President Recep Tayyip Erdogan said in a speech that the drop was part of a "campaign" led by foreign powers.

Mr Erdogan has been putting pressure on the central bank to not raise interest rates in order to keep fuelling economic growth. 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.

"This will be my people's response to those who have waged an economic war against us", he said. Summer vacations in Europe and the USA means lower liquidity that can compound movements in currencies.

The Turkish president added that North Atlantic Treaty Organisation could lose an ally.

US President Donald Trump's proposal to double tariffs on steel and aluminum from Turkey could push up costs even further for domestic oil and gas pipeline projects, as energy executives said they were already struggling from earlier tariff rises.

The sudden drop came when Donald Trump announced on Twitter he was doubling United States import tariffs on Turkish steel and aluminium.

Turkish President Tayyip Erdogan leaves from a mosque in Bayburt, Friday. Banco Bilboa Vizcaya Argentaria, UniCredit and BNP Paribas have the greatest exposure to Turkish debt and many of their loans are unhedged. So the sudden fall raises the possibility of corporate bankruptcies or bank failures that could hurt the economy.

The White House also cited currency movements in China last week when Trump called for a possible increase in tariff rates on Chinese imports.

The Russian ruble this week plummeted to its lowest level against the dollar since 2016 as the United States said it was imposing more sanctions on Moscow over a chemical attack in the UK earlier this year.

The reaction from global currency markets to the rift between two North Atlantic Treaty Organisation allies caused the euro to slump to a 13-month low and pushed the dollar to a one-year high.

Europe is also dependent on Turkey to restrain the flow of migrants from conflict in the Middle East in return for aid.

The president has declared that American importers' reliance on foreign metals poses a national security risk to the USA, and he also has increased the cost of these imports on Japan, Turkey and members of the European Union, the paper reported. A 20 percent fall in exports would only reduce GDP by 0.1 percentage point or less per year in the 19 countries that use the euro currency.

"A US-induced crisis in Turkey will create a new martyr in the region, with far-reaching consequences which American congressmen and President Trump do not foresee", Bulent Gultekin, a professor at the Wharton School of the University of Pennsylvania and the former Turkish Central Bank governor, told MEE.

Q: What is Erdogan proposing to do?

Erdogan, who says a shadowy "interest rate lobby" and Western credit ratings agencies are attempting to undermine Turkey's economy, said Turks should exchange their gold and dollars into lira to help the currency. Companies were "being unfairly punished for participating in worldwide trade", she said. The Central Bank's independence should always continue as a principle. With little by way of detail, the promises failed to soothe markets.

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