Investors Flee Emerging Markets Amid Lira Crisis

Investors Flee Emerging Markets Amid Lira Crisis

Investors Flee Emerging Markets Amid Lira Crisis

President Recep Tayyip Erdogan said Tuesday that Turkey would boycott US -made electronic products, escalating a feud with the Trump administration that has contributed to the rapid decline of the Turkish currency.

The lira TRYTOM=D3 has fallen nearly 30 percent this month on concerns about a diplomatic rift with the United States and President Tayyip Erdogan's reluctance to raise interest rates despite rising inflation.

"There is a panic move on all emerging market currencies, the stress spreads on the South African rand, the Indian rupee or the Mexican peso", BusinessDay quoted analyst Alexandre Baradez from brokerage IG Group, as saying.

Turkey's troubles also dampened US stock markets, driving losses in all three major indexes by Monday afternoon.

In an interview with the newspaper Hurriyet, treasury and finance minister Berat Albayrak also said the government had no plans to seize foreign currency deposits or convert deposits to the Turkish lira. "We will protect our economic independence by being tight-knit together", he told members of his AK Party in a speech.

Calling for Islamic solidarity, President Erdogan said on Monday that Washington has the dollar and "we have our God".

"If they have iPhones, there is Samsung on the other side, and we have our own Vestel here", he said, referring to the Turkish electronics company, whose shares rose five percent.

But the lira has dramatically tumbled since last Friday after the U.S. imposed sanctions and additional tariffs to force Turkey to release Pastor Andrew Brunson, who is a USA citizen detained in Turkey on flimsy terrorist charges.

Turkey has weathered several tough economic crises over the decades.

"We welcome long overdue news.but it is not enough", US Secretary of State Mike Pompeo says on Twitter.

Erdogan on August 12 warned businesspeople to not "rush to banks to withdraw foreign currency".

The lira has dramatically tumbled since last Friday
The lira has dramatically tumbled since last Friday

The lira was around 6.55 per dollar Tuesday, up 6 percent from the previous day, when the central bank freed up cash for banks.

Financial markets are now waiting to see what Turkey does next, after a raft of measures unveiled Monday did little to stem the tide.

The Turkish Lira has slide rapidly since the United States slapped sanctions on two Turkish ministers, and extended its slide Monday morning to a new record low, at over 6.8 to US dollar at the opening of European and Turkish markets.

Trump has tweeted that he wants the pastor released.

"The plunge in the lira, which began in May, now looks certain to push the Turkish economy into recession, and it may well trigger a banking crisis", said Andrew Kenningham, chief global economist at Capital Economics.

"I believe that would help to facilitate a solution, including to the economic problems", Maas said.

The ruckus between Turkey and the United States has impacted on other countries' currencies, including the Indian rupee, as investors fear the lira's wobbles could spread to developing nations.

The U.S. media said the decision was related to the current state of Turkish-American relations and the Brunson case.

Brunson was transferred from prison to house arrest last month, but the Turkish government has declined to release him from custody.

Early on Friday, Trump announced he would double steel and aluminum tariffs against Turkey, causing the lira to lose up to 18 percent, and investors to lose what remaining confidence they had. "But everything must be done to ensure an independent central bank", Merkel said during a news conference in Berlin, according to Reuters.

Related news