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Erdogan calls on Turks to buy lira 'in response to economic war'

11 August 2018

Compounding the lira's agony, President Donald Trump said he had doubled steel and aluminium tariffs on Turkey, noting that relations between the North Atlantic Treaty Organisation allies were "not very good".

Turkish President Recep Tayyip Erdoğan struck a defiant note in a series of Twitter messages shortly before Trump's announcement. The currency's slide deepened early Friday, after the Financial Times reported that the eurozone's chief financial watchdog was concerned about how some of Europe's biggest lenders would be affected by a crisis in Turkey. A looming debt crisis that potentially involves a Turkish request for assistance or a bailout from the International Monetary Fund could have significant European and global economic repercussions.

Berat Albayrak, the Treasury minister and Mr Erdogan's son-in-law, is due to announce a "new economic model" for Turkey...

The Turkish lira has fallen more than 10% against the dollar after a Turkish delegation in Washington failed to prevent USA sanctions. On Thursday Ergodan said Turkey will withstand the economic pressure. "It is a national fight", he told a crowd in the northeastern city of Bayburt. This will be my people's response to those who have waged an economic war against us'.

"The dollar can not block our path".

Turkey has defied the United States on several fronts.

One of the triggers of the turmoil has been a standoff with the USA over a detained American pastor that Turkey, a North Atlantic Treaty Organisation ally, has put on trial for espionage and terror-related charges linked to a failed coup attempt in the country two years ago.

Investors fear Turkey is teetering on the edge of financial crisis following a dramatic plunge in its currency that has gathered pace this week. It is obvious how it will be done: "since the final decision-maker of all policies in the new regime is the president, the responsibility of regaining confidence is on his shoulders", said Seyfettin Gursel, a professor at Turkey's Bahcesehir University. "On some days, I end the day with a loss".

Concerns are mounting that the decline will start to hit European banks.

With US sanctions and tariffs hitting Turkey this month for its refusal to release an American pastor, the relationship between the two North Atlantic Treaty Organisation allies is crumbling amid fears on the regional impact. As the currency drops, Turkish companies and households with debt in foreign currencies see their debts expand.

"It is expected that the current account deficit would be balanced at around 4 percent", the ministry said, adding that a saving program in the public sector, which was launched this year, will continue in the medium-term. And like with the lira, investors found new reasons on Friday to dump the currency. It fell yet further to 6.2 to the dollar at 1254 GMT, almost 12 percent weaker on the day.

The dollar index, which measures the greenback's strength against a group of six major currencies, breached the 96 level, taking it to its highest level since July 2017. Spot gold fell 0.3 percent to trade at US$1,207.15 per ounce. Such relentless depreciation drives up the cost of imported goods from fuel to food for ordinary Turks. But this seems less likely as Erdogan and his mouthpieces in the media cast the United States' moves as some kind of epic battle to wreck Turkey, and Trump just gave them fresh ammunition.

"Turkey is playing a very risky game".

An important emerging market, Turkey borders Iran, Iraq and Syria and has been mostly pro-Western for decades. He is a self described "enemy of interest rates" and wants banks to lend cheap credit to fuel growth, something experts are anxious could seriously affect the economy. The central bank is next scheduled to meet on September 13.

Erdogan calls on Turks to buy lira 'in response to economic war'