August 15, 2018
Ankara officials will channel money ‘into Turkey’s financial markets and banks’
Turkish lira rallies as Qatar makes $15bn loan pledge
Turkey’s beleagured currency has bounced back from record lows after Qatar pledged to shore up the banking sector’s shaky finances with loans worth $15bn (£11.8bn).
A week after a diplomatic spat with the US sent the lira into a tailspin, the agreement with Qatar was calculated to help Turkey avoid having to ask the International Monetary Fund for emergency funding.
Officials in Ankara said the Qatari money would be “channeled into Turkey’s financial markets and banks”, with the implication that the investment would be enough to head off a banking collapse.
However, while the investment gave the Turkish lira much-needed respite, the US president Donald Trump’s announcement of further trade sanctions against Ankara, along with concerns about the rising value of the dollar and weak profits in Chinese tech firms, sent global financial markets into reverse.
London’s FTSE 100 sank to its lowest closing level since 26 April after the blue-chip index shed 113 points to 7497, a loss of 1.5%. Germany’s DAX closed 1.6% lower, while the Paris-based CAC lost 1.8%.
Many developing markets also suffered losses, which dragged emerging market shares into a bear market, usually defined as a decline by a fifth over a few months.
The MSCI’s main emerging markets equities index fell 2%, down 20% on its recent peak in January.
Some analysts said the rout was likely to continue as the US president pressed ahead with higher trade tariffs on Turkey, China and the European Union.
Trump has used his executive powers to impose higher tariffs on steel, aluminium and cars, leading to retaliatory duties on US exports.
The Turkish president, Recep Tayyip Erdoğan, retaliated to the latest US tariffs on Wednesday with higher import duties on US imports, including alcohol, cars and tobacco.
Mohamed A El-Erian, the chief economic adviser at the German insurer Allianz, tweeted that Erdoğan’s policies, including the Qatari investment, would act like sticking plaster, leaving the possibility open for an IMF rescue.
He said: “This is part of the Turkish government’s strategy to avoid the IMF by finding alternative external support. To be a sustainable stabilizer, funding needs to be larger and reach the central bank.”
However, the lira rallied by 6% after the Qatari pledge and a separate move by Turkey’s central bank to boost the finances of the country’s banks.
In an effort to defend the lira, Turkey’s central bank tightened its rules on currency swaps and other foreign exchange transactions, limiting the ability of banks to supply lira to foreign financial companies.
Turkey’s trade minister, Ruhsar Pekcan, said: “The United States is an important trading partner but it is not our only partner. We have other partners and alternative markets.”
Peter O’Flanagan, the head of trading at the foreign exchange consultancy Clear Treasury, said: “Restrictions from the Turkish central bank limiting banks’ use of swap lines has had the desired effect on the lira.”
Turkey sought to face down the US and currency traders as Erdoğan reportedly received support from the German chancellor, Angela Merkel. In a phone conversation the leaders agreed to strengthen bilateral ties and Merkel told Erdoğan the strength of Turkey’s economy was important to Germany, a presidential source told Reuters.
In another episode of diplomatic activity, Erdoğan met the Emir of Qatar, Sheikh Tamim bin Hamad al-Thani, who was on a “working visit” to see the Turkish president.
Erdoğan has accused the US of waging economic war against his country and has vowed not to back down. Ankara more than doubled the tariff on US rice to 50%, increased the US coal tariff to 14% from 10% and more than tripled the tariff on cars to 120%.
Erdoğan and Trump are locked in a dispute about the US pastor Andrew Brunson, who was arrested almost two years ago and accused of plotting against the Turkish government. On Wednesday a Turkish court rejected an appeal for Brunson to be released from house arrest and for his travel ban to be lifted but an upper court is yet to rule on the appeal.
Some analysts have predicted economic turmoil in Turkey for many months as inflation soared and the lira fell. Like other emerging markets, Turkish companies borrowed heavily in dollars when US interest rates were low, fuelling a consumer boom that is running out as the dollar strengthens.
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