Turkish lira sinks further on threat of more U.S. sanctions

Alicia Cross
August 19, 2018

On Friday, both Moody's and Standard & Poor's ratings agencies downgraded Turkey closer to junk status amid the current lira crisis, prompting Erdogan to challenge those playing "games" on the economy.

The fate of Andrew Brunson, charged with terror offenses by a Turkish court, also overshadows the predicament of a Turkish-American scientist from NASA and several Turkish workers for the US diplomatic mission who were arrested in Turkey. The two countries already disagree over US support for Kurdish fighters in Syria, as well as a plan by Turkey to buy Russian missiles.

Turkey has been holding pastor Andrew Brunson for two years on charges that he is linked to the Fethullah Gülen Movement, which Turkey says was responsible for a failed coup attempt in 2016.

In a brief statement, China's foreign ministry said: "China believes that Turkey has the ability to overcome the temporary economic difficulties, and hopes the relevant sides can ease their differences via dialogue".

S&P said: "Despite heightened economic risks, we believe the policy response from Turkey's monetary and fiscal authorities has so far been limited".

The Turkish lira stood at 5.80 per dollar on Friday, up about 0.4 percent against the dollar.

Turkish Foreign Minister Mevlut Cavusoglu struck a somewhat conciliatory note, saying Turkey was ready to discuss its issues with the United States as long as there are no threats. Turkey's dollar bonds fell, while the cost of insuring exposure to Turkish debt rose.

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The Turkish banking watchdog has taken steps to stabilise the currency, limiting futures transactions for offshore investors and lowering limits on swap transactions. On Friday, it further broadened those caps.

Turkey and its firms face repayments of almost US$3.8 billion (S$5.2 billion) on foreign currency bonds in October, Societe General has calculated.

An important emerging market, Turkey borders Iran, Iraq and Syria and has been mostly pro-Western for decades. This decision caused the fall of the Turkish lira to the historic low.

Companies that for years have borrowed overseas at low interest rates have seen their cost of servicing foreign debt rise by a quarter in lira terms in two months.

Finance Minister Berat Albayrak, Mr Erdogan's son-in-law, told investors on Thursday that Turkey would emerge stronger from the currency crisis, insisting that its banks were healthy and signalling it could ride out the dispute with Washington.

Ebbing concerns over the fallout from the Turkish lira's recent slide also helped strengthen the euro against the dollar.

There was also optimism about better relations with the European Union after a Turkish court released two Greek soldiers pending trial. The currency has rebounded strongly after hitting a record low of 7.24 at the start of the week, bolstered by central bank measures to support it and Qatar's pledge to invest $15 billion in Turkey.

Other reports by Free-Prsite

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