Turkey's central bank promises 'all necessary measures' to save its financial system

13 August, 2018, 18:27 | Author: Teresa Adams
  • US Additional steel tariffs on Turkey to begin Aug. 13

Namely, within the tightening of economic measures, US President Donald Tramp made a decision to double customs duties on Turkish steel and aluminum, speeding up the fall of the Turkish currency, which lost 16 percent on the dollar on Friday.

It dropped as much as 18% at one stage, rattling United States and European stocks as investors took fright over banks' exposure to Turkey.

Addressing a conference in Ankara gathering Turkish ambassadors, Mevlut Cavusolgu called on the U.S.to "remain loyal to ties based on traditional friendship and North Atlantic Treaty Organisation alliance". Shares in Europe's major banks also lost ground.

It was last at 6.8450, having found just a sliver of support when Turkish Finance Minister Berat Albayrak said the country had drafted an action plan to ease investor concerns and the banking watchdog said it limited swap transactions. He has used his new power to put pressure on the central bank to not raise rates.

The central bank will cut the lira's reserve requirement ratio by 250 basis points for all maturity brackets and lowered reserve requirement ratios for non-core FX liabilities by 400 basis points for maturities up to three years.

The moves are meant to grease the financial system, ease any worries about trouble at the banks and keep them providing loans to people and businesses.

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"The liquidity needs for today is only a few billion lira".

"The central bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary", the bank said in a statement. This time last month it was at 4.8450.

Onshore yuan dropped 0.51 per cent to 6.8810 per dollar, the biggest decline since July 19 after the central bank lowered the daily yuan reference rate to 6.8629 per dollar, its weakest level since May 31.

The currency hit a record low of 7.23 per dollar late on Sunday after Mr Erdogan, in a series of speeches over the week, showed no sign of backing down in the stand-off against America, a North Atlantic Treaty Organisation ally.

The unit may reverse its previous falls in the wake of upcoming news and banking regulations imposed by Turkish authorities.

Budget discipline would be the foundation of the new approach, Albayrak said.

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"There's a risk-off mood generally triggered by the Turkish currency sell off, and we are seeing a wider sell-off now, and it's looking pretty ugly in other emerging markets as well", said Investec economist Philip Shaw.

Market analysts broadly welcomed his comments but said investors wanted to see action.

However, the currency fell again Monday as fears deepened about the country's ability to deal with a crisis that has rattled markets around the world, dropping as much as 11% against the dollar in morning trading in Asia.

But a drastic rate hike was unlikely because of the damage it would do to Turkey's corporate sector, while any capital controls would close off access to foreign exchange for companies already short of dollars, Tresca said.

In the interview with Hurriyet newspaper, Mr Albayrak described the lira's weakness as "an attack", echoing Mr Erdogan - who is his father-in-law.

Erdogan, a self-styled "enemy of interest rates", wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing.

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During the speech, Erdogan reiterated his earlier claim that the crisis has resulted from "an operation against our economy conducted through exchange rates" and said Turkey would prevail. "What is the reason for all this storm in a tea cup?"

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