As currency hits new low, Erdogan says Turkey in ‘economic war’
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As currency hits new low, Erdogan says Turkey in ‘economic war’

President calls on countrymen to exchange their foreign cash for lira, amid concerns over economy, row with US about detained pastor

In this file photo taken on July 15, 2018, Turkish President Tayyip Erdogan gives a speech at a ceremony marking the second anniversary of the attempted coup at the Presidential Palace in Ankara, Turkey. (AFP Photo/Adem Altan)
In this file photo taken on July 15, 2018, Turkish President Tayyip Erdogan gives a speech at a ceremony marking the second anniversary of the attempted coup at the Presidential Palace in Ankara, Turkey. (AFP Photo/Adem Altan)

ISTANBUL — Turkish President Recep Tayyip Erdogan called on Turks Friday to support the struggling lira by exchanging any foreign money, saying Turkey faced “an economic war.”

“If you have dollars, euros or gold under your pillow, go to banks to exchange them for Turkish lira. It is a national fight,” Erdogan said in comments broadcast on national television.

“This will be the response to those who have declared an economic war,” he said, blaming Turkey’s woes on what he described as an “interest rate lobby” seeking to push the country to higher rates.

People change money at an exchange office in Ankara, Turkey, on August 10, 2018. (AFP Photo/Adem Altan)

Investors hoping Erdogan’s comments would give some indication that the government was prepared to support the lira were disappointed with the currency crashing further in value.

The currency extended its losses to trade at 6.2 to the dollar, a loss of 11.5 percent on the day.

But Erdogan said Turks should not be alarmed by exchange rate movements. “The dollar, the mollar, will not cut our path,” said Erdogan using a figure of speech he repeatedly uses to mock something. “Do not worry!”

He said Turkey was not afraid of “threats” and added Turkey had “alternatives” for economic cooperation in many places “from Iran, to Russia, to China and some European countries.”

Erdogan had in comments late Thursday raised eyebrows by appearing to play down the magnitude of the crisis, saying: “If they have dollars, we have our people, we have our right and we have Allah!” he said.

Doubts over central bank

Turkey remains at loggerheads with the United States in one of the worst spats between the two NATO allies in years over the detention for the last two years of American pastor Andrew Brunson and a host of other issues.

Talks this week in Washington failed to resolve the impasse which has led both sides to slap sanctions on senior officials amid fears of graver measures to come.

In this file photo taken on July 25, 2018, US pastor Andrew Craig Brunson is escorted by Turkish plainclothes police officers to his house on in Izmir. (AFP Photo)

Meanwhile, markets are deeply concerned over the direction of economic policy under Erdogan with inflation nearly 16 percent but the central bank reluctant to raise rates in response.

UBS chief economist for EMEA emerging markets Gyorgy Kovacs said a giant rate hike of 350-400 basis points would be “consistent with real rate levels that in the past helped to stabilize the currency.”

He warned a “rate hike alone might not stem the worries about the US and Turkey tensions and a potential further escalation.”

And it remains unclear if the bank would be willing to sharply lift rates with analysts saying the nominally independent institution is under the influence of Erdogan, who wants low rates to keep growth humming.

Turkish Treasury and Finance Minister Berat Albayrak announces his economic policy in Istanbul, on August 10, 2018. (AFP Photo/Yasin Akgul)

Erdogan after winning June 24 elections with revamped powers tightened his control over the central bank and appointed his son-in-law Berat Albayrak to head a newly empowered finance ministry.

“President Erdogan’s strengthened powers under the new presidential system have made it increasingly uncertain whether policymakers will be able to act to stabilise the economy,” said William Jackson, chief emerging markets economist at Capital Economics in London.

He said the lira’s fall was being exacerbated by fears the central bank “isn’t being permitted to raise interest rates.”

‘Accelerating speed’

Concerns were intensified Friday by a report in the Financial Times that the supervisory wing of the European Central Bank (ECB) had over the last weeks began to look more closely at eurozone lenders’ exposure to Turkey.

The report said that the situation is not yet seen as “critical” but Spain’s BBVA, Italy’s UniCredit and France’s BNP Paribas are regarded as particularly exposed.

With many Turkish companies have taken out loans in dollars, banks face a higher risk of default.

“Investors have been looking at the unfolding currency crisis in Turkey as a local difficulty, however the accelerating speed of the declines appears to be raising concerns about European banks exposure to the Turkish banking system,” said Michael Hewson, chief market analyst at CMC Markets UK.

People pass in front of into a jewellery shop where gold bangles are on display in Istanbul on August 8, 2018. (AFP Photo/Yasin Akgul)

Albayrak, who formerly served as energy minister, is on Friday expected to announce what he has described as a “new economic model” for Turkey but markets remain skeptical.

The plunge in the lira has featured remarkably little on Turkish television channels and newspapers — most of which after recent ownership changes are loyal to the government — with media focusing instead on recent flooding by the Black Sea.

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