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 United States.
The Turkish lira has nosedived over the past week and tumbled another 7% on Monday as the central bank’s measures failed to restore investor confidence.
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 Nato ally.
Mr Erdogan said: “Turkey is faced with an economic siege. We are taking the necessary steps against these attacks and will continue to do so.”
The president 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 – a veiled hint at closer ties with Russia – 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 announcements as being anything more than temporary calming measures, rather than solutions to the problems at hand”.
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”.
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 some 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.
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”.
The Istanbul public prosecutor’s office announced it had begun investigating “those who had taken actions which threatened economic stability”.
The Capital Markets Board of Turkey issued a similar warning to those who spread “lies, false or misleading information, news or analysis”.