Main elements of crisis remain unaddressed, with eventual bailout most probable outcome
Until reports came on Thursday night that the US was preparing to impose more sanctions, the Turkish government had had a decent few days. The currency crisis, which threatened to become chaotic on Monday, had improved. The lira had almost returned to its level of a week ago. During that time, the country had increased liquidity in its banking system, unveiled $15bn (£11.8bn) of direct investment from Qatar, announced a clampdown on short-sellers and on Thursday its finance minister, Berat Albayrak, talked the language of fiscal discipline on a phone call with investors. There have been worse fightbacks.
Yet there is a big difference between buying time and turning a corner. Turkey has merely achieved the former. All the main elements of the crisis remain unaddressed. The Qatari money was pledged at impressive speed but the external funding requirement is enormous – about $220bn during the next 12 months, economists estimate.
Finance minister out to convince investors but threat of fresh US sanctions looms
Turkey’s finance minister sparked a recovery in the lira after he addressed thousands of international investors, pledging to protect beleaguered local banks and cut public spending to prevent the country defaulting on its loans.
Berat Albayrak, who has faced criticism for failing to tackle the country’s growing financial crisis, spoke to around 6,000 investors on a conference call to rebuff concerns that a funding squeeze on Turkey’s banks and a damaging trade war with the US would force him to seek a rescue bailout from the International Monetary Fund (IMF).
Currency rises from record low against US dollar but investors remain anxious at lack of interest rate rise
Turkey’s lira continued its recovery on Thursday, ahead of a crucial conference call between the country’s finance minister and international investors.
It rose 2.5% in early trading, with one dollar buying 5.8 lira. A diplomatic spat with the US helped send the lira into a tailspin last week and it hit a record low of 7.2 to the dollar on Monday, sending tremors through emerging markets. However, the lira remains about 20% below where it was a month ago.
Berat Albayrak to speak to investors this afternoon
Conference call at 2pm BST/4pm TRT
Berat Albayrak’s rise to power has attracted comparisons to another well-connected son-in-law, Jared Kushner.
My colleague Martin Chulov explains how Albayrak has shimmied up the greasy pole:
Albayrak completed a master’s of finance at New York’s Pace University, before completing a PhD in Turkey. In 2006, two years after his marriage, he was appointed the chief executive of the energy and media conglomerate Çalık, a role that opened connections across the region. In 2015, Albayrak was named energy minister – the same year he became an MP. By later that year he had begun to consolidate political power, moving from one of the country’s most influential businessmen to a figure at the heart of the power base – and unmistakably tied to his father-in-law.
He displayed a ruthless streak, eliminating perceived rivals within the ruling AKP party, such as Turkey’s then prime minister, Ahmet Davutoğlu, and anyone perceived to be disloyal to Erdoğan.
There are encouraging signs for Turkey in the financial markets today:
Turkish lira rallying strongly for third day in three. Unlike earlier in the week, signs of life in the bond market, rates about 50bps lower, still underwater for this week.
#Lira has gained close to another 2.5% so far today, now seems to be within reasonable touching distance of the start of crisis last Friday. I never thought it could recover so soon. Let’s see what happens next. #usdtry#Erdogan
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Let’s wait & see how the Investor Conference Call goes later today. Call actually will take place at 4pm local time (9am EDT.) Not out the realm of possibilities Trump Admin may try to steal Fin Min Albayrak’s thunder with additional sanctions , as Brunson not released Wednesday.
Refusing standard monetary medicine means following Argentina is logical conclusion
There is not an easy way for Turkey to escape its financial crisis but three measures that might contain the coming pain would be these. First, raise interest rates to try to put a floor under the plunging lira. Second, tone down the bellicose rhetoric and certainly don’t pick new fights with the US. Third, call the International Monetary Fund.
None of those actions arrived on Monday. The central bank lowered reserve requirements for banks, which may improve liquidity in the financial system for a short period but it kept the official interest rate at 17.5%. International investors knew how to read that decision. With inflation heading rapidly towards 20%-plus, it was a signal that Turkey is still refusing standard monetary medicine.
Currency down more than 9% on Monday as investors fear financial crisis could infect European markets
The Turkish lira has fallen almost 9% in early trading on Monday as investors fear the country’s financial crisis will spread to European markets.
Despite defiant words by the Turkish president Recep Tayyip Erdoğan over the weekend pledging as yet unspecified action to reverse the slide, the currency stood at 7 lira to the US dollar at 3.30amBST on Monday, a fall of 9% on Friday’s closing price.
Recep Tayyip Erdoğan focuses on impact of US tariffs and aggressors aboard after lira fall
Global markets are braced for another hectic day of trading 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.