Is the US-Turkey crisis beyond fix? | USA

Stocks dive, euro falls, as Turkey turmoil ripples out

The lira tumbled 13 percent in one day, to 6.51 per dollar, a massive move for a currency that will make the Turkish poorer and further shake worldwide investors' confidence in the country.

The diplomatic dispute with the USA was one of the triggers for the turmoil this week.

Erdogan's "tight grip" on the central bank and the fact "higher interest rates do no fit with Turkey's economic growth strategy" meant that the central bank has kept interest rates on hold, Nora Neuteboom, economist at ABN Amro, told AFP.

"Aluminum will now be 20 percent and Steel 50 percent", he said in a Twitter post.

Reminding the world of the time when Turkey rushed to America's help whenever necessary, during the past six decades, Erdogan recounted Turkish contribution in defusing the Korean and Cuba missile crises, and sending troops to Afghanistan in the wake of the September 11 terror attacks.

As the lira tumbled in value - with no breakthrough in sight in the impasse with the United States, sparked by the jailing of American pastor Andrew Brunson - the government has remained sanguine with few comments aimed at rallying markets.

Trump's "jubilation in inflicting economic hardship on its North Atlantic Treaty Organisation ally Turkey is shameful", he wrote.

Trump pointed out on Twitter that the lira was not doing well, but one of Erdogan's economic advisers, Yigit Bulut, responded that the sell-off in the lira had caused $300 billion in losses in the US stock market.

On Friday Turkey made it clear Erdogan had spoken on the phone with Russian President Vladimir Putin after the latest USA tariffs, with the two men "expressing pleasure" that relations were progressing "positively".

"To convey that Turkey does not respond to threats, we retaliated by sanctioning multiple American officials".

After his June 24 election victory, Erdogan put his son-in-law Berat Albayrak in charge of a newly expanded finance ministry while a new presidential system did away with the office of prime minister, whose last incumbent Binali Yildirim had on occasion urged caution in economic policy.

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"International investors would like to see the same actions taken in Argentina recently: much higher interest rates, [and] a commitment to address inflation, improve fiscal performance and engage with multi-lateral lenders like the IMF", Hasnain Malik, equity strategist at Exotix Capital, said.

Independent analysts argue the central bank should instead raise rates to tame inflation and support the currency.

"Our concern is that there is little appetite within the Turkish government or central bank to tighten policy, let alone turn to the International Monetary Fund for support". But since adopting increased powers, Erdogan appears to have greater control over the bank as well. On Friday, The New York Times published an article by Erdogan himself. "You are exchanging your strategic partner in North Atlantic Treaty Organisation for a priest". "This is a domestic and national struggle". "Relations with countries who behave like this have reached a point beyond salvaging", said Erdogan, who warned of "economic war".

"They say we will not give this or that".

According to the Capital Economics consultancy, the plunge in the lira risks putting further pressure on the banking sector in Turkey due to the scale of the credit boom and one third of bank lending being denominated in foreign currencies.

Coupled with an inflation rate of almost 16 percent, that could cause a lot of damage to the local economy.

Aylin Ertan, a 43-year-old caterer in Ankara, said she was concerned over the future of her small business. "On some days, I end the day with a loss".

Reverberations spread through global financial markets, with European stock markets especially hit as investors took fright over banks' exposure to Turkey.

At its lowest level lira traded at 6.801 against the U.S. dollar - a considerable decline from 5.54 at the end of the Wall Street trading on Thursday.

Erdogan has cast the sell-off in the currency that has followed the trade row as an economic war and an attempt to undermine Turkey's economy.

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