The Turkish lira plunged further on Monday, August 13. In the morning, €1 was briefly worth 8 lira, after which it stabilized at a level of 7,6 lira per euro. The value has decreased by 1% in 30 week. The Minister of Finance announced on Monday that he would come up with plans to restore calm.
the lira is under great pressure, partly due to the deteriorating relationship between Turkey and the United States (US). This has mainly to do with the detention of the pastor Andrew Brunson. The US is taking the necessary measures against Turkey, because the country refuses to release the predecessor.
Turkish President Recep Tayyip Erdogan lashed out at the US last weekend. He said that Turkey is engaged in an "economic war". He also rejected a settlement with the International Monetary Fund (IMF).
No rate hike Turkish central bank
The Turkish central bank announced a number of measures on August 13 to counter the sharp fall in the lira. For example, the reserve requirements for lira and foreign currencies for Turkish banks are being lowered and the central bank is making 'all necessary liquidity' available to banks. The hoped-for interest rate hike did not materialize. After the central bank's announcement, the lira lost value slightly back.
The Finance Minister (Berat Albayrak), Erdogan's son-in-law, already announced that authorities will come up with an action plan on Monday. The steps are intended to restore calm to the financial markets. However, it is highly questionable whether this will help. The main concern of the financial markets appears to be that Erdogan (through his son-in-law) has pressured Turkey's central bank not to raise interest rates further. This while inflation in Turkey continues to rise sharply.
Contagion risk emerging markets
Meanwhile, the crisis appears to pose a contagion risk to emerging market stock markets, where international investors seem to be taking money out. Stock markets in the Far East fell sharply on Monday. The fall of the lira, which hit a new low, caused investor turmoil and dragged other emerging market currencies with it.
De Japanese Yen By contrast, considered a safe haven in uncertain times, it was on the rise and weighed down on Japanese exporters. In Tokyo, the Nikkei index closed 2% lower at 21.857,43 points. Automaker Toyota and camera maker Canon, which sell many products abroad, fell by 2,1% and 2,5% respectively.
Japanese banks also lost ground, following European and American banks. Mitsubishi UFJ Financial Group lost 2,8% and Mizuho Financial Group fell 1,3%. Commodities companies were also sold amid emerging market concerns. The Shanghai stock market lost 1,1% and in Hong Kong the Hang Seng index suffered an interim loss of 1,6%. The Kospi in Seoul dropped 1,6% and the All Ordinaries in Sydney dropped 0,5%.
Stock markets in Europe also down
The turmoil has also led to price losses on the European stock markets. For example, there are concerns about the European banking sector's exposure to Turkey. The AEX index lost 0,6% in the first trading hour on Monday. The fall of the Turkish currency is also dragging other currencies down. The euro has lost a lot of ground against the dollar. The euro fell below the $1,14 level to $1,1371 per euro on Monday.
Read more on Business Insider:
- Erdogan tries to avert currency crisis with calls to prop the lira
- Crisis is due to lack of knowledge about the role of the central bank
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