Turkish lira price stabilises as Erdogan attacks ‘economic terrorists’

Turkish President Tayyip
Erdogan.
Matt Dunham – WPA Pool/Getty
Images

• The lira has stabilised on Tuesday morning after a
  dramatic decline over the last 9 days.
• Turkish President Erdogan has vowed action against
  “economic terrorists” and claimed the US is waging economic
  “war” against the country.
• The drop in the lira was sparked by US sanctions
  against Turkey, economic conditions in the country, and a
  strong dollar that is pulling foreign investment out of Turkey
  and back to the United States.

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The Turkish lira has stabilised on Tuesday morning after over a
week of big losses.

The lira rallied against the dollar on Tuesday morning from
Monday’s lows. The US dollar is down 5% against the lira to $6.53
at 9.35 a.m. BST (4.35 a.m. ET), retreating from a high of over
$7.24 (in other words, an all-time low for the lira). The lira is
still down over 45% against the dollar so far this year.

The drop is down to a perfect storm of fresh US sanctions against
the country, economic conditions in Turkey, and a strong dollar
that is pulling foreign investment out of Turkey and back to the
United States.

The consequences of the strong dollar have reverberated through
emerging markets, with Argentina, India, and others also seeing
steep drops in the value of their currencies.

“The dollar is crushing everything in its path at the moment and
this is not good for EM or global growth,” Neil Wilson, the
chief market analyst for Markets.com, said in an email on
Tuesday morning.

Turkish President Recep Tayyip Erdogan on Monday promised action
against “economic terrorists” plotting to harm Turkey by
spreading false rumours and vowing that they would feel the
full force of the law,
Reuters reported.

“There are economic terrorists on social media,” Erdogan told
ambassadors at the Presidential Palace in Ankara, adding that
authorities are responding.

“They are truly a network of treason… We will not give them the
time of day… We will make those spreading speculations pay the
necessary price,” he said.

Erdogan said rumours had been spread that Turkey would establish
capital controls following the decline of the lira, which fell
18% on Friday alone. He said the Ministry of the Interior had
located 346 social media accounts that were spreading a negative
perception of the economy and promised legal action would be
taken.

Bank analysts have warned that
capital controls may be necessary to stabilise Turkey’s currency
if Erdogan continues to refuse to raise interest rates.

Investigations have also been
launched from the prosecutor’s office in Ankara and Istanbul
into individuals suspected of being involved in actions that
threaten the economy. Evidence of the accusations has not yet
been disclosed.

Erdogan has accused the US of waging economic “war” against
Turkey,
The Independent reported. He said dollars, euros and gold are
now “the bullets, cannonballs and missiles of the economic war
being waged against our country.”

Turkey will “start looking for new friends and allies” if
Washington maintains its “misguided notion that our relationship
can be asymmetrical,” he said, adding: “The most important thing
is breaking the hands firing these weapons.”