Global markets are braced for another hectic day of trading amid Turkey’s unfolding economic crisis, after the country’s currency, the lira, plunged 20 per cent to record lows on Friday.
Recep Tayyip Erdogan, Turkey's president, remained defiant over the weekend, accusing foreign interests of waging an economic war against Turkey, and pledging trade measures to reduce reliance on the dollar and US markets.
The currency went into freefall last week after Donald Trump, the US president, slapped tariffs on the country's steel exports and declared, via Twitter: "Our relations with Turkey are not good at this time."
But Turkey’s woes spread far beyond a trade dispute. Investors are increasingly concerned about the $350 billion in foreign debt held by Turkish banks and companies, and their ability to finance it as the currency weakens and inflation soars.
As the crisis has deepened, Turkish consumers have faced sharply rising food, fuel and medicine prices. The inflation rate is expected to jump rapidly from the current 15.4 per cent official rate.
Value of currency
The Turkish central bank has offered no indication that it will raise interest rates to combat high inflation or other measures to stem the rapid drop in the value of the currency.
“They are threatening us,” Erdogan said on Saturday at a rally in the city of Ordu near the Black Sea. “You cannot bring [the Turkish] people to their knees by using a threatening language.”
Referring to the US, he said: "It is a shame. You prefer a pastor to a strategic ally of yours in Nato. "
At another rally, he said Turkey would begin trading in local currencies with Russia, China and Iran.
Local media, which is largely loyalist and almost entirely owned by allies of Erdogan, echoed the message of a nation besieged. In an article titled Lying News Agencies, the pro-government newspaper Sabah took aim at Bloomberg news and the Financial Times for their coverage of the financial crisis. Another article was headlined: "Trump the saboteur."
Investor fears
Silence from the central bank has highlighted investor fears over the institution’s independence from Erdogan, who was sworn in last month with wider executive powers that many worry will be used to wield greater influence over monetary policy.
Erdogan opposes raising interest rates to combat high inflation, a measure many analysts have urged. And his appointment of his son-in-law Berat Albayrak to the post of treasury and finance minister has also heightened concerns that he will exert greater influence in fiscal strategy.
Statements by public officials have focused on portraying the financial crisis as an attack from abroad by the US and other agents, urging Turks to rally around their government to defeat the aggression. – Guardian service
