Erdogan calls on Turks to buy lira 'in response to economic war'

Erdogan calls on Turks to buy lira 'in response to economic war'

The embattled lira tumbled 16 percent against the dollar on Friday, with US President Donald Trump saying he had doubled steel and aluminum tariffs on Turkey in comments that contributed to the currency's further slide.

The White House said Mr Trump had authorised them under a section of U.S. trade law that allows for tariffs on national security grounds. 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.

Turkey's woes shook world markets, pushing down stock indexes and lifting the dollar, which traders around the world typically buy in times of concern.

In any case, economists warn that with the row with the United States injected into the mix, it will take far more than an increase in interest rates to reverse the downward trajectory of Turkey's once robust economy.

The Turkish unit of currency, the lira, has been dropping due both to the policies of Turkish President Recep Tayyip Erdogan and that country's souring relationship with the United States.

The lira, which has been losing ground in recent days in part due to the US tensions, plunged as much as 20 percent on Friday to record low levels against the dollar.

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In what appears to be a diplomatic riposte, Turkey later said Erdogan had held a phone call with Russian President Vladimir Putin to discuss economic ties.

The meetings came as Turkey seeks to stanch an economic meltdown amid fallout from US sanctions imposed last week over the continued detention of the pastor, Andrew Brunson, who was jailed on espionage and terrorism suspicions more than two years ago and recently released to house arrest.

The drop in the lira has put increasing pressure on Turkish banks, given many companies have borrowed heavily in foreign currency.

Despite Trump's insistence, Turkey has not budged in freeing American pastor Andrew Brunson, who has been detained by Turkey for nearly two years on charges that he was working with a terrorist organization and was a spy. On 26 July, Trump and Vice President Mike Pence threatened sanctions if Brunson was not instantly released.

The president has declared that American importers' reliance on foreign metals poses a national security risk to the United States, and he also has increased the cost of these imports on Japan, Turkey and members of the European Union, the paper reported.

Meanwhile, markets are deeply concerned over the direction of economic policy under Erdogan, with inflation at almost 16 percent but the central bank reluctant to raise rates in response.

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Shares of Turkish steelmakers Kardemir Karabuk Demir Celik Sanayi ve Ticaret AS and Eregli Demir ve Celik Fabrikalari TAS plunged as much as 8 per cent and 9.9 per cent, respectively, after Trump's tweet.

In an opinion piece in the New York Times on Friday, Erdogan said Turkey's partnership with the United States could be in jeopardy unless Washington "starts respecting Turkey's sovereignty".

The currency's drop - 40% so far this year - has become a gauge of fear over a country facing the fallout of years of debt-fuelled growth, worldwide concern over President Recep Tayyip Erdogan's push to amass power, and a souring in relations with allies like the US.

The Turkish lira fell 13 percent to 6.51 per dollar.

People change money at a currency exchange office in Istanbul, Turkey, Aug. 10, 2018. Conservative evangelical Protestants are a key constituency at home for U.S. President Donald Trump.

While the International Monetary Fund has a history of lending a hand to Turkey, Erdogan is wary of the organization, creating barriers to a bailout.

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In the past, the Turkish authorities have always managed to contain problems by being willing to take aggressive action such as in January 2014, when the central bank hiked its overnight lending rate by 4pc at a midnight meeting. That is because a trade war would make it even harder for Turkey to get the dollars it needs, so the lira would be even less valuable.

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