Published: Fri, August 10, 2018
Economy | By

Turkey's economic crisis deepens as Trump doubles tariffs

Turkey's economic crisis deepens as Trump doubles tariffs

The lira accelerated its losses after US President Donald Trump said in a tweet he had authorised the doubling of aluminium tariffs on Turkey to 20% and steel tariffs to 50%.

Trump said on Twitter.

"However, the accelerating speed of the declines appears to be raising concerns about European banks' exposure to the Turkish banking system".

It has also lost more than 40 percent this year, hitting a new record low after Trump took steps to punish Turkey in a wide-ranging dispute.

Turkey's President Tayyip Erdogan told Turks to exchange gold and dollars into lira as the country's currency plunged as much as 14%.

European shares fell on Friday as worries over a dramatic fall in the Turkish lira jolted financial markets, with banks such as Spain's BBVA and Italy's UniCredit falling on worries over their exposure to the country.

But given the sizeable personal control Erdoğan commands over the running of the Turkish economy - after granting himself the right to appoint the central bank's governors and naming his son-in-law as finance minister - economists reckon the government will attempt to muddle through the country's current problems.

The unorthodox approach of the president, who has dominated Turkish politics for more than 15 years, has unnerved investors who have voiced concerns over Turkey's authoritarian trajectory under Erdogan.

"Other EM currencies have held their ground against the dollar, having generally been weakening previously", said analysts at Capital Economics.

On Friday, before Trump's tweet, Erdogan had tried to stem the sell-off by appealing to Turkish citizens to exchange any dollars, euros or gold for lira to help the currency.

Turkish President Tayyip Erdogan has remained defiant despite the lira being in free fall.

But President Erdogan brushed off any concerns during a speech in the northeastern city of Bayburt on Friday, saying: 'The dollar can not block our path. "Don't worry", Erdogan assured the crowd. Earlier, it had crashed some 12 percent through the 6.00 level for the first time in history, trading at one point at more than 6.20 lira per dollar.

"If they have their dollar, we have the people, we have Allah", he said, as the lira continued to fall. "We believe that a move above 200 bp is needed to stop the TRY from bleeding more today". There would be a transformation in the finance ministry with regards to taxation, he said. NO BREAKTHROUGH While Turkey and the United States disagree over a host of issues, the most pressing disagreement has been over Brunson and the detention of other USA citizens in Turkey.

The currency has lost almost a third of its value this week. High level meetings in Washington between US and Turkish officials ended this week without an apparent resolution.

'However, I say it once again from here. "Today I am instructing my friends that we will freeze the assets of U.S. secretaries of justice and interior in Turkey", he said last week. Erdogan has been putting pressure on the central bank to not raise interest rates in order to keep fueling economic growth.

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