Turkey’s central bank has acted to stem the lira’s crash, but the intervention was not enough to quell investors’ fears that the country’s financial crisis could spread to European markets.
The lira pulled back from from a fresh record low overnight but was still trading steeply lower at nearly 7% down against the dollar on Monday morning. The euro was also trading at a one-year low.
The lira’s performance continued to underwhelm despite the central bank pledging to provide liquidity and cut lira and foreign currency reserve requirements – a cash buffer – for Turkish banks.
Turkey’s central bank said: “[We] will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary.”
The Ankara-based bank pledged to provide “all the liquidity the banks need”.
However, it has not raised interest rates, which some economists argue is necessary to alleviate the crisis because it will curb inflation and deter investors from selling the lira. The Turkish president, Recep Tayyip Erdoğan, has warned against raising borrowing costs.
The Turkish finance minister, Berat Albayrak, who is Erdoğan’s son-in-law, said at the weekend that authorities would start implementing an economic action plan on Monday morning. He rejected capital controls as an option to stem outflows of hard currency.
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