Global markets were braced for another hectic day of trading on Monday amid Turkey’s unfolding economic crisis after the country’s currency, the lira, plunged 20% to record lows on Friday.
Recep Tayyip Erdoğan, Turkey’s president, remained defiant over the weekend, accusing foreign interests of waging an economic war against Turkey and pledging trade measures to reduce reliance on the dollar and US markets.
He told party officials on Sunday in the Black Sea city of Trabzon: “We will respond to those, who declared trade war on the entire world and included Turkey in it, by steering toward new alliances, new markets.”
The currency went into freefall last week after Donald Trump, the US president, slapped tariffs on the country’s steel exports and declared via Twitter: “Our relations with Turkey are not good at this time.”
But Turkey’s woes spread far beyond a trade dispute. Investors are increasingly concerned about the $350bn in foreign debt held by Turkish banks and companies, and their ability to finance it as the currency weakens and inflation soars.
As the crisis has deepened, Turkish consumers have faced rising food, fuel and medicine prices. The inflation rate is expected to jump rapidly from the current 15.4% official rate.
In an interview with Hurriyet newspaper published on Sunday night, Berat Albayrak, the Turkish finance minister, echoed Erdoğan by describing the lira’s weakness as “an attack”, and said the action plan was ready.
“From Monday morning onwards our institutions will take the necessary steps and will share the announcements with the market,” Albayrak said, without giving details on what the steps would be.
Albayrak also said a plan has been prepared for banks and the real economy sector, including small to mid-sized businesses which are most affected by the foreign exchange fluctuations. “We will be taking the necessary steps with our banks and banking watchdog in a speedy manner,” he said.
The Turkish central bank has offered no indication that it will raise interest rates to combat high inflation or other measures to stem the drop in the value of the currency.
Silence from the central bank has highlighted investor fears over the institution’s independence from Erdoğan, who was sworn in last month with wider executive powers that many worry will be used to wield greater influence over monetary policy.
Erdoğan opposes raising interest rates to combat high inflation, a measure many analysts have urged. And his appointment of his son-in-law, Berat Albayrak, to the post of treasury and finance minister has also heightened concerns that he will exert greater influence in fiscal strategy.