Lira crisis: Turkish central bank takes action

The Turkish Lira has hit record lows.

Turkey’s central bank has said that it will take “all necessary measures” for financial stability in Turkey following the collapse of the lira.

The lira hit a new record low of nine percent against the dollar before recovering slightly to be six percent lower in late morning trading in Turkey.

“[We] will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary,” said Turkey’s central bank.

Financial analyst at trading platform Spreadex, Connor Campbell, said: “One of the key sticking points is the intransigence from president Erdoğan – whose appointment of his son-in-law as minister of finance and Treasury has cast doubt on the independence of the Turkish central bank – over keeping interest rates unchanged despite eye-wateringly high inflation and the lira’s heavy losses.”

“That means the various non-rate hike measures announced on Monday to stabilise the currency – including the promise to provide ‘all the liquidity the banks need’ – will likely be limited in their effect,” he added.

Experts are blaming the fall in Turkish lira on fears that the country is descending into an economic crisis.

The stock markets in Europe and Asia also fell.

The Nikkei in Japan felly by 1.7 percent, Hong Kong was down 1.8 percent, Shanghai fell 1.7 percent, Sydney fell 0.5 percent and the Taiwanese bourse was down by three percent.

In Europe, London’s 100-share index was down 0.5 percent. The German and French markets also fell by similar amounts.

Andrew Kenningham, the chief global economist at Capital Economics, said: “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.”

“This would be another blow for emerging markets as an asset class, but the wider economic spillovers should be fairly modest, even for the eurozone.”

 

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Safiya focuses on business and political stories for UK Investor Magazine. Her interests include international development, travel and politics.