Tuesday, 23 October, 2018

Turkish Currency Collapses After Trump Doubles Metals Tariffs

The lira went into free-fall sinking more than 10 percent The lira went into free-fall sinking more than 10 percent
Jan Cook | 11 August, 2018, 20:34

U.S. President Donald Trump said on Friday he had authorised higher tariffs on imports from Turkey, imposing a 20 percent duty on aluminium and 50 percent one on steel, as tensions rose between the two North Atlantic Treaty Organisation allies over Ankara's detention of an evangelical pastor and other diplomatic issues.

The lira's fall has been made worse by President Recep Tayyip Erdogan's statements on economic policy.

"As we have seen during the Greek debt crisis, financial markets are sufficiently interwoven that concerns over debt serviceability in one region can spread quite quickly within European banks".

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 stabilise the currency" but warned a deal to normalise ties with the U.S. may also be needed.

The lira has lost more than 40 percent this year.

President Donald Trump doubled United States tariffs on Turkish steel and aluminium, saying "US relations with Turkey are not good at this time".

Trump said via a tweet that the tariff on aluminium imports will be increased to 20 per cent and the tariff on steel imports will be raised to 50 per cent as the Turkish Lira "slides rapidly downward against our very strong Dollar!"

Adding to Turkey's fiscal woes, new pension and spending increases announced by president Erdogan in the lead-up to his recent election win have further weakened the outlook for Turkey's public finances.

"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 Russian Federation, to China and some European countries".

Turkey's currency crisis spilled loudly on to the global stage Friday as other markets, including USA stocks, took at hit from concern about financial contagion to other countries and banks.

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The White House said Trump would use a section of USA law that allows for tariffs on national security grounds to impose the increased duties.

Politically, Turkey's finance minister continues to try to say the right things, including that the country will embrace a tightened fiscal policy in the coming months to achieve the strategic goal of "economic balance".

Ankara blames for an attempted coup in 2016.

President Trump called Brunson an "innocent man of faith" who should be released immediately.

Trump's announcement came less than an hour after Turkish President Tayyip Erdogan urged Turks to help defend the country against what he called economic war against the country.

Turkey's lira sank as low as 20 percent against the US dollar Friday before settling at a 15 percent drop.

"The surge in Turkish inflation, bond yields and the even more dramatic plunge in Turkey's exchange rate in 2018 suggest that the country could now be in danger of heading for a bust", Berenberg economist Carsten Hesse said. The Treasury Department announced fresh sanctions on two Turkish government officials in response to Turkey's refusal to let Brunson go.

"This is a domestic and national struggle", Erdoğan said, according to The Associated Press. Gulen has denied the allegation. It is obvious how it will be done: "since the final decision-maker of all policies in the new regime is the president, the responsibility of regaining confidence is on his shoulders", said Seyfettin Gursel, a professor at Turkey's Bahcesehir University.

Presenting the government's new economic model, he said the next steps of rebalancing would entail lowering the current account deficit and improving trust.

"I don't think foreign banks will be willing to lend to Turkish banks".

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