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Turkey lira crashes to new lows as market alarm grows

AFP  |  Istanbul 

Turkey's embattled today hit new record lows against the US and euro, losing over seven percent in value as strains with the showed no sign of abating and fears grew over the exposure of European banks.

The was trading at 5.95 to the dollar, a loss on the day of 7.5 percent. Earlier, it had crashed some 12 percent through the 6.00 level for the first time in history, trading at one point at more than 6.20 per

The lira has now lost over a third of its value against both the and the this year, with the battered by both concerns over domestic economic policy and the political situation.

Versus the on Friday the lira lost 7.0 percent to trade at 6.8.

But Recep Tayyip Erdogan, who had remained unusually silent all week as the lira bled value almost daily, appeared to express confidence over the situation.

"We will not lose the economic war," state-run TRT Haber television quoted Erdogan.

The agency also quoted Erdogan as saying that would be able to overcome the situation just like flooding this week in the province of Ordu.

"God willing we will overcome these disasters (the Ordu floods) and also we will be successful in the economic war," he said.

Erdogan had in comments late Thursday raised eyebrows by appearing to play down the magnitude of the crisis, saying: "If they have dollars, we have our people, we have our right and we have Allah!" he said.

remains at loggerheads with the in one of the worst spats between the two NATO allies in years over the detention for the last two years of American pastor and a host of other issues.

Talks this week in failed to resolve the impasse which has led both sides to slap sanctions on senior officials amid fears of graver measures to come.

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

for emerging markets Gyorgy Kovacs said a giant rate hike of 350-400 basis points would be "consistent with real rate levels that in the past helped to stabilise the "

He warned a "rate hike alone might not stem the worries about the US and tensions and a potential further escalation." And it remains unclear if the would be willing to sharply lift rates with analysts saying the nominally independent institution is under the influence of Erdogan, who wants low rates to keep growth humming.

Erdogan after winning June 24 elections with revamped powers tightened his control over the central and appointed his to head a

"Erdogan's strengthened powers under the new presidential system have made it increasingly uncertain whether policymakers will be able to act to stabilise the economy," said William Jackson, chief emerging at in

He said the lira's fall was being exacerbated by fears the central bank "isn't being permitted to raise interest rates".

Concerns were intensified Friday by a report in that the supervisory wing of the (ECB) had over the last weeks began to look more closely at zone lenders' exposure to Turkey. The report said that the situation is not yet seen as "critical" but Spain's BBVA, Italy's and France's are regarded as particularly exposed.

"Investors have been looking at the unfolding crisis in Turkey as a local difficulty, however the accelerating speed of the declines appears to be raising concerns about European banks exposure to the Turkish system," said Michael Hewson, at

Albayrak, who formerly served as minister, is on Friday expected to announce what he has described as a "new economic model" for Turkey but markets remain sceptical.

The plunge in the lira has featured remarkably little on Turkish television channels and newspapers -- most of which after recent ownership changes are loyal to the government -- with most media focusing instead on recent flooding by the

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, August 10 2018. 17:25 IST