Turkey tries to contain crisis but currency keeps falling
ANKARA, Turkey (AP) — Turkey's central bank announced a series of measures on Monday to free up cash for banks as the country grapples with a currency crisis sparked by concerns over President Recep Tayyip Erdogan's economic policies and a trade and diplomatic dispute with the United States.
The Turkish lira has nosedived over the past week and tumbled another 7 percent on Monday as the central bank's measures failed to restore investor confidence.
The currency hit a record low of 7.23 per dollar late on Sunday after Erdogan, in a series of speeches over the week, showed no sign of backing down in the standoff against the United States, a NATO ally.
He threatened to seek new alliances and partners and warned of drastic measures if businesses withdraw foreign currency from banks.
Erdogan also ruled out the possibility of higher interest rates, as they can slow economic growth. But independent economists say higher rates are needed urgently to stabilize the currency and Erdogan's hard line is one of the reasons investors are worrying.
Erdogan won a second term in office in June under a new system of government that gives the president sweeping powers. The move has increased concerns over the central bank's independence.
On Monday, the central bank announced a series of steps to "provide all the liquidity the banks need."
The moves are meant to grease the financial system, ease any worries about trouble at banks and keep them providing loans to people and businesses.
In times of high uncertainty, banks tend to shy away from lending to each other. A so-called credit crunch, a lack of daily liquidity, can cause a bank to collapse.
Simon Derrick, chief currency strategist at BNY Mellon, said the central bank's measures are unlikely to be enough. In the absence of a decisive rate increase, he said, "it is...hard to look at these announcements as being anything more than temporary calming measures, rather than solutions to the problems at hand."
The lira has now dropped some 45 percent this year.
The currency had recovered some of its losses when Berat Albayrak, the finance chief — and Erdogan's son-in-law — said late Sunday that the government had readied an "action plan," without elaborating. He also said the government had no plans to seize foreign currency deposits or convert deposits to the Turkish lira.
The dispute with the U.S. has centered on the continued detention of an American pastor who is on trial for espionage and terror-related charges. The U.S. has responded by slapping financial sanctions on two ministers and later doubled steel and aluminum tariffs on Turkey.
Foreign Minister Mevlut Cavusoglu said Monday that the United States would not achieve aims by exerting pressure and imposing sanctions on Turkey.
Addressing a conference in Ankara gathering Turkish ambassadors, he called on Washington to "remain loyal to ties based on traditional friendship and NATO alliance" with Turkey.
Meanwhile, Turkey moved to take legal action against hundreds of social media accounts it accused of provoking the lira's plunge.
The Interior Ministry said it initiated legal investigations against 346 social media accounts "which posted content provoking the dollar exchange rate."
It did not provide information on the accounts but said they aimed to "manipulate the dollar rate and form negative perceptions" concerning the Turkish economy.
The Istanbul Public Prosecutor's office announced it had begun investigating "those who had taken actions which threatened economic stability." The Capital Markets Board of Turkey issued a similar warning to those who spread "lies, false or misleading information, news or analysis."