Turkey financial crisis: lira plunges again amid contagion fears

https://www.theguardian.com/world/2018/aug/13/turkey-financial-crisis-lira-plunges-again-amid-contagion-fears

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The Turkish lira has fallen almost 9% in early trading on Monday as investors fear the country’s financial crisis will spread to European markets.

Despite defiant words by the Turkish president Recep Tayyip Erdoğan over the weekend pledging as yet unspecified action to reverse the slide, the currency stood at 6.99 lira to the US dollar at 2.30amBST on Monday, a fall of 8.7% on Friday’s closing price.

It had earlier fallen to an all-time low of 7.24 before regaining some ground after the country’s banking regulator announced late on Sunday night that it would limit swap transactions on the battered currency.

Asian stock markets were also down on Monday. The Nikkei in Japan lost 1.2%, Hong Kong was off 1.2% and the Taiwanese bourse fell 2%.

The euro hit one-year lows on Monday as the falling lira fuelled demand for safe havens, including the US dollar, Swiss franc and yen.

The lira has tumbled more than 40% this year on worries about Erdoğan’s increasing control over the economy and deteriorating relations with the United States, cheifly over the war in Syria.

A decision by a Turkish court to extend the detention of Andrew Brunson, an American pastor accused of espionage for Kurdish militants and the Gülen movement, a group accused of masterminding the 2016 coup, forced the issue into the open with Donald Trump responding last week by doubling US tariffs on Turkish steel.

Chris Weston, of online trading firm IG Market in Melbourne, warned that global markets would be on edge after the escalation in the crisis.

“After a monster sell-off last week in the lira and a renewed focus on what is effectively a balance of payments crisis, the focus remains around what lasting measures can be implemented and whether or not there will material impact to European financial institutions,” he said.

“Certainly, the latter issue has been truly brought onto the radar by the European Union’s financial watchdog, who have expressed concern about EU financial exposures to Turkey. And so, if it is a concern for this institution, then it should be for traders too.

“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.

“This would be another blow for EMs as an asset class, but the wider economic spillovers should be fairly modest, even for the euro zone,” he added.