RTMon, 13 Aug 2018 00:36 UTC
© Altan Gocher/Global Look Press
Turkey has accused Donald Trump of leading an attack on its national currency. The lira lost about 40 percent of its value against the US dollar this year and, to reduce its volatility, Ankara has prepared an urgent action plan.
"The currency of our country is targeted directly by the US president," Finance Minister Berat Albayrak told Hurriyet. "This attack, initiated by the biggest player in the global financial system, reveals a similar situation in all developing countries."
The Turkish lira took a massive hit against the dollar on Friday following Trump's decision to double tariffs on aluminum and steel imports from Turkey to 20 percent and 50 percent. Overall, the national currency lost roughly about 40 percent of its value this year.
To calm down the markets, the government instructed its institutions to implement a series of actions on Monday. "All of our action plan and measures are ready," Albayrak said, without elaborating.
"Together with our banks, we prepared our action plan regarding the situation with our real sector companies, including Small and Medium-sized enterprises (SMEs), which is the sector that is affected by the fluctuation the most," the minister said. "Together with our banks and the Banking Regulation and Supervision Agency (BRSA), we will take the necessary measures quickly."
President Recep Tayyip Erdogan meanwhile slammed the US decision to impose new tariffs on steel and aluminum imports.
"It is making an operation against Turkey... Its aim is to force Turkey to surrender in every field from finance to politics, to make Turkey and the Turkish nation kneel down," Erdogan said in Trabzon on Sunday. "We have seen your play and we challenge you."
Comment: Was Turkey made an example and meant as a warning? Or, were there some underlying and compounding faults in Erdogan's monetary policy?
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...there are other factors weighing down the lira. On Monday, the currency dropped to a historic low of 7.2 lira against the dollar before recovering slightly to 6.8 against the greenback. Turkey's Istanbul 100 stock market hit its lowest level in dollar terms since March 2009.
Investors in lira are also concerned about Turkey's internal monetary policy. President Erdogan has been criticized for interfering in the central bank's monetary policy by reportedly not allowing the regulator to hike the interest rate to prevent the lira's collapse.
Additionally, Turkey has a vast amount of debt denominated in US dollars. So, when the lira falls, the debt becomes more expensive. The country has a debt in dollars and other foreign currencies accounting for a half of its gross domestic product.
"The decline in the lira is multifaceted, caused not only by a weak external position in terms of current account deficit and inadequate currency reserves, but also the challenging political environment which exacerbates the vulnerabilities in the lira," Kerry Craig, global market strategist at J.P. Morgan Asset Management, wrote, as quoted by CNBC.
"A mid-meeting rate hike and tightening of monetary policy may help to avert the lira's decline, to some extent," he added.
Comment: Was Turkey made an example and meant as a warning? Or, were there some underlying and compounding faults in Erdogan's monetary policy?
More from RT: