Turkish lira crashes amid EU contagion worries … SHARECAST
Turkish lira crashes amid EU contagion worries
(Sharecast News) – The Turkish lira sank to record new depths as European traders got to work on Friday as concerns mounted about US economic sanctions and amid questions
of how much the eurozone economy would be affected.
The lira crashed 7.3% against the dollar on Friday morning to TRY 5.9568, having already been at TRY 5 at the start of August. The lira was also down more than 5% against
the euro to TRY 6.7355.
The descent was accelerated as a Turkish government delegation returned from talks in Washington with no apparent solutions to the crisis and reports in the Financial Times
that the European Central Bank is worried about the exposure of major eurozone banks to Turkey.
Direct pressure from President Recip Tayyib Erdogan on Turkey’s central bank to keep interest rates low has further undermined investor confidence, with the lira stumbling overnight on speculation that Ankara
might be forced into an emergency rate hike before the weekend.
Turkey’s finance minister, Berat Albayrak, is also expected to unveil the country’s “new economic model” later on Friday.
“Turkey is in deep trouble,” said economist Carsten Hesse at Berenberg, with the country’s credit-driven boom followed by a surge in inflation, bond yields, a dangerous widening of the current account deficit
and now the dramatic plunge in Turkey’s exchange rate, which all “suggest that the country could now be in danger of heading for a bust”.
Beyond the obvious risks to Turkey itself, Hesse did not think there was much risk to the Eurozone economy. “In our view, the impact on
Eurozone GDP growth would be small. Even if Eurozone goods exports to Turkey were to fall by, say, 20%, this would subtract no more than 0.1ppt from growth in the big Eurozone.”