Turkish Lira Plunges Further; Erdogan Fails to Assuage Investors

T. Belman. Turkey’s currency is not the only one suffering from Trump’s policies. So is China’s and Iran’s.

Lira falls as much as 10%, shaking emerging markets world-wide

By Georgi Kantchev, Yeliz Candemir and Saumya Vaishampayan, WSJ

Turkey’s currency plunged again Monday, rattling other vulnerable emerging markets, as a defiant speech from President Recep Tayyip Erdogan and policy moves from the nation’s central bank failed to assuage investors about the country’s perilous financial condition.

The lira dropped 8.2% to 7.01 against the U.S. dollar, after falling as much as 10% in Asian morning trading. The country’s debt and stock markets were also swept up in the turmoil.

The lira is down more than 40% this year, battered by concerns about the NATO member’s political and economic stability and a continuing trade spat with the U.S.

“We will not retreat from our position,” Mr. Erdogan told a conference in Ankara, adding Turkey wouldn’t allow the U.S. “to lay its hands on achievements we gained at the cost of blood.”

As part of a plan announced earlier Monday, Turkish authorities made efforts to boost liquidity in the market, lowering the amount of reserves local lenders must park with the central bank. The move should help inject about 10 billion liras, $6 billion and $3 billion worth of gold into the financial system, the central bank said. Turkish banks and companies traditionally hold reserves in gold, which can be used when the reserve requirement is lowered.

But analysts said the measures won’t have any direct impact on the lira because it doesn’t ease a core concern—the hefty debt exposure of Turkish banks and corporations—and warned the central bank has limited reserves of its own to weather the storm.

On Friday, Aug. 10, President Trump announced he would double steel and aluminum tariffs on Turkey.
“The lira is in a free fall and the measures announced so far simply aren’t enough,” said Kevin Daly, portfolio manager for emerging market debt at Aberdeen Standard Investments. “It’s fueling the negative sentiment and the disappointment among investors.”

Other emerging markets, such as Indonesia and South Africa that are also heavily reliant on foreign investors, also were rattled. Shares fell across Asia and Europe, though the declines abated in later trading. U.S. stock markets fell slightly. The turmoil hit southern European government bonds, with the 10-year Italian yield rising above 3%, its highest in two months.

The South African rand fell to a nearly two-year low against the dollar, sliding as much as 9.2%, though the falls moderated later in the day. The Chinese yuan neared its weakest level in more than a year, hitting 6.8911 to a dollar in Hong Kong. Investors flocked to haven currencies, with the Swiss franc and the Japanese yen gaining against the euro.

Turkey has become a primary cause for concerns on global financial markets in recent weeks, as tumultuous domestic politics have paired with a cocktail of economic vulnerabilities including high levels of foreign-currency debt, a current-account deficit and rising borrowing costs. As one of the world’s largest oil importers, Turkey is also vulnerable to rising energy prices.

In addition, the country is in the midst of an escalating dispute with its core military ally, the U.S., over the fate of an American pastor. The White House has vowed to pile pressure on Ankara until the pastor, Andrew Brunson, who faces terrorism charges and up to 35 years in prison in Turkey, is on a plane to the U.S.

Mr. Erdogan has blamed the drop in the lira on what he calls “an economic war waged against Turkey.”

On Monday, Turkey’s Interior Ministry said it has taken legal actions against owners of 346 social media accounts it accused of having expressed views that harmed the lira, according to state-run Anadolu Agency.

Some people “are conducting economic terrorism on social media,” Mr. Erdogan said at the Ankara conference. “This is treason.”