Published: Fri, September 14, 2018
Economy | By

Turkish lira surges against United States dollar

Turkish lira surges against United States dollar

Turkey has in recent weeks been battling through one of the most troubled periods for its economy under the rule of President Recep Tayyip Erdogan, with the lira battered on currency markets in August.

In a decision published on Thursday in the Official Gazette, the government said any contracts previously made in foreign currency but which are now in effect must be converted into lira within 30 days.

Rental and sale agreements in Turkey are often offered in euros and dollars to foreigners living in the country.

In an overhaul of the Turkiye Wealth Fund, seven new members were appointed, including Erdogan's son-in-law, Treasury and Finance Minister Berat Albayrak, as the deputy chairman.

But hours later, the Turkish Central Bank ignored Erdogan, raising interest rates to fight price increases and the risk of runaway inflation.

The lira firmed to 6.01 against the dollar following the decision, from more than 6.4176 beforehand.

Piotr Matys, emerging markets foreign exchange strategist at Rabobank, said the central bank had taken a decisive step which should allow it to gradually restore confidence in the lira.

"Erdogan's comments clearly show that he does not support this and it becomes much more hard, if not impossible, for the Turkish central bank to tighten enough to stabilize the lira and get inflation under control", Esther Reichelt, a forex strategist at Commerzbank in Frankfurt, told DW.

The embattled currency has fallen by 40% this year amid a lack of interest rate hikes to control inflation.


"We can not allow the use of the tool of exploitation that is interest rates", Erdogan told a meeting in Istanbul on Thursday.

The lira reacted strongly to the decision, rising by five per cent in value to 6.0 lira to the United States dollar.

The US earlier hit Turkey with tariffs on items such as steel and aluminium in an effort to increase pressure on the country to free the detained American pastor Andrew Brunson. This as inflation was up to nearly 18 percent in August, its highest since September 2003 - the year Erdogan first took power as prime minister. Growth slowed to an annual rate of 5.2% in the second quarter, from the first quarter's 7.4%.

Erdogan has cast the lira crisis as an "economic war" targeting Turkey and has repeatedly urged Turks to sell their dollar savings to shore up the lira. "It's only really going to be a bit problematic if you're repatriating to the country you came from". "Reorganizing the wealth fund is a must", he said.

It remains to be seen how the news will sit with Erdogan, however.

Zafer Sonmez, head of Turkey and Africa for Malaysia's government investment vehicle Khazanah Nasional Bhd, was named general manager. Erdogan said last September the fund was to be reorganised after dismissing its chairman over its failure to meet targets.

The fund's other assets include the state's minority 49.12-percent shareholding in flag carrier Turkish Airlines, as well as state-owned enterprises such as the PTT Turkish post office.

Such funds can be used for large projects, maintaining pensions and national welfare programmes, or in times of crisis.

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