Turkey’s lira gained slightly on Monday from Friday’s crash, where it lost 18 percent and was at 7.24 to the dollar.
Negative developments with the U.S. and President Tayyip Erdogan’s call to lower interest rates sent the currency plummeting shedding 18 percent on Friday, losing over 40 percent to the dollar so far this year.
The refusal of Erdogan to raise interest rates to halt inflation has created the crises and is seen as long time coming according to analysts. Erdogan has rejected these claims and said that his country is the target of an economic war.
In a meeting with Turkish ambassadors he said that the attacks well continue and that it is clear that Turkey is under siege. He also said that he has an action plan in place which will return the exchange rate to a rational level.
Turkey’s Economic Plan
On Sunday Albayrak said in an interview that investor concerns would be eased over his economic plan, adding that budget discipline and not ruling out seizure or conversion on dollar denominated bank deposits into lira.
He went on to say that all the necessary steps together with our bank and the central bank will be done speedily.
Following his comments together with the announcement by the central bank, the lira dropped ending at 6.978 per dollar at 1609. Shares in Turkish banks slipped in dollar terms, with dollar bonds and sovereign dollar debt plummeting.
Across emerging markets, the meltdown rippled, with stocks and currencies at its lowest level in a year.
Sunday night saw another fall in the lira when it took another fall after global demand sent investors seeking safe havens in the yen, Swiss franc and the U.S. dollar.
According to reports Angela Merkel, German Chancellor said that the economic destabilisation in Turkey is in no one’s interest.
The European central bank have agreed to meet the banks lira liquidity needs at 150 basis points above the weekly benchmark repo rate at the overnight rate of 19.25 percent.
The move by the reserve bank will free up the financial system with $3 billion equivalent of gold liquidity, $6 billion and 10 billion lira. All the liquidity banks needs will be provide for, they said.
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Market analysts say that investors are looking for action even though they welcomed Albayrak’s comments.
Guillaume Tresca, Credit Agricole senior emerging market strategist said that a complete rebalance of Turkey’s economic business plan together with rate hikes and the central banks strong commitment is needed.
She added that she did not foresee a big rate hike because it would damage Turkey’s corporate sector.
Head of emerging markets portfolio manager at Nikko Asset Management, Raphael Marechal said that the stresses in the economy would make a rate hike worse.
346 social media accounts face legal action after the interior ministry on Monday said that they posted provocative comments about the lira weakening.
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