The currency turmoil in Turkey

The currency turmoil in Turkey

News:

1. The Turkish lira lost a fifth of its value against the U.S. dollar recently.

Important facts:

2. The currency has lost over 40% of its value against the dollar this year.

3. Reasons :

• The U.S. Treasury had recently sanctioned two Turkish Ministers in response to Turkey’s continuing detention of America pastor Andrew Brunson on spying and terror charges.
• S. President Donald Trump recently said that he would double import tariffs on Turkish steel and aluminum.
• The Turkish economy has been in overdrive, centred on a construction and consumption boom; inflation was more than 15%. The country has had a high current account deficit and soaring foreign debt.
• A strengthening dollar and higher interest rates in the U.S. have compounded the lira’s troubles.

4. Turkey’s reaction:

• Lira would stabilize as there was no “economic basis” for its fall.
• The President urged Turks to boycott U.S. electronic goods, and slapped retaliatory tariffs on American cars and alcohol.
• The Turkey’s Interior Ministry is also probing 346 social media accounts for undermining confidence in the economy.
• Recently, Turkey’s central bank promised to provide the liquidity needed by banks.
• Turkish regulators also stepped in to curb foreign accounts from placing bets against the lira.

5. Financial ramifications:

• Recently, the Indian rupee breached the 70 mark against the dollar for the first time, largely caused by the lira’s fall.
• European banks that own significant stakes in Turkish lenders are also at risk.
• For now it looks like the lira is recovering but, longer term, Turkey will likely raise the already high interest rates or it may even look to the IMF for financing.