Turkey frees up cash for its banks as it tries to counter currency crisis

TURKEY’S central bank has announced a series of measures to free up cash for banks as the country grapples with a currency crisis sparked by concerns over President Recep Tayyip Erdogan’s economic policies and a dispute with the US.

The Turkish lira has nosedived over the past week and tumbled another seven per cent yesterday as the central bank’s measures failed to restore investor confidence.

The currency hit a record low of 7.23 per dollar after Mr Erdogan, in a series of speeches, showed no sign of backing down in the stand-off against America, a Nato ally.

Mr Erdogan ruled out the possibility of higher interest rates, which economists said are needed to stabilise the currency. He also threatened to seek new alliances and partners and warned of drastic measures if businesses withdraw foreign currency from banks.

Simon Derrick, chief currency strategist at BNY Mellon, said that in the absence of a decisive rate hike, “it is hard to look at these as being anything more than temporary calming measures, rather than solutions to the problems at hand”.

The lira recovered some of its losses after Berat Albayrak, the country’s finance chief – and Mr Erdogan’s son-in-law – said the government had readied an “action plan” to ease market concerns.

He also said the government had no plans to seize foreign currency deposits or convert deposits to the Turkish lira.

The Central Bank said it had taken a series of steps to “provide all the liquidity the banks need”.

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

In times of high uncertainty, banks tend to shy away from lending to each other. A so-called credit crunch, a lack of daily liquidity, can cause a bank to collapse.

The lira has dropped about 45% this year.

The dispute with the US has centred on the continued detention of an American pastor who is on trial for espionage and terror-related charges. The US has responded by slapping financial sanctions on two ministers and later doubled steel and aluminium tariffs on Turkey.

Turkey’s foreign minister said the United States will not achieve aims by exerting pressure and imposing sanctions on Turkey.

Addressing a conference in

Ankara gathering Turkish ambassadors, Mevlut Cavusolgu called on the United States to “remain loyal to ties based on traditional friendship and Nato alliance” with Turkey.

Mr Cavusoglu said: “We support diplomacy and negotiations but it is not possible for us to accept impositions.”

Meanwhile, Turkey’s interior ministry said it will take legal action against hundreds of social media accounts that it says are provoking a drop in the lira.

The ministry said it had initiated legal investigations against 346 social media accounts “which posted content provoking the dollar exchange rate”.