Currency crisis continues, Qatar offers aid as Turkey doubles tariffs on certain US imports

Currency crisis continues, Qatar offers aid as Turkey doubles tariffs on certain US imports

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ISTANBUL: Turkey doubled tariffs on some US imports including alcohol, cars and tobacco on Wednesday in retaliation for US moves, but the lira rallied further after the central bank’s liquidity moves had the effect of supporting the currency.

Ankara acted amid increased tension between the two NATO allies over Turkey’s detention of a Christian American pastor and other diplomatic issues, which have helped send the lira tumbling to record lows against the dollar.

The currency has lost nearly 40 percent against the dollar this year, driven by worries over President Tayyip Erdogan’s growing influence on the economy and his repeated calls for lower interest rates despite high inflation.

It rebounded some 6 percent on Wednesday, briefly strengthening to less than 6.0 against the dollar, after the central bank squeezed lira liquidity in the market, effectively pushing up rates and supporting the currency.

Optimism about better relations with the European Union after a Turkish court released two Greek soldiers pending trial and a banking watchdog’s step to limit foreign exchange swap transactions have also helped the lira.

“They are squeezing lira liquidity out of the system now and pushing interest rates higher,” said Cristian Maggio, head of emerging markets strategy at TD Securities.

“Rates have gone up by 10 percent … The central bank has not done this through a change in the benchmark rates, but they are squeezing liquidity, so the result is the same,” Maggio said.

The lira firmed as far as 5.75 against the dollar on Wednesday and stood at 6.1320 at 1243 GMT in a move initially triggered by the Turkish court decision on the Greek soldiers who faced espionage charges.

A treasury desk trader at one bank said this showed relations with the EU could recover “while tense relations continue with the USA.”

The lira was also helped by a step from the banking watchdog BDDK, cutting the limit for Turkish banks’ forex swap, spot and forward transactions with foreign banks to 25 percent of a bank’s equity.

“Remarkable turnaround,” Tim Ash, Bluebay Asset Management senior emerging markets analyst wrote in a client note. “They are killing offshore lira liquidity to stop foreigners shorting the lira,” he said.

The Qatari money will be channeled into banks and financial markets, a Turkish government source told Reuters.

The move by Turkey’s Gulf ally offered further support to a lira rally after the Turkish central bank tightened liquidity and curbed selling of the currency.

Lira has lost around 40% against the US dollar this year, due to worries over Erdogan’s growing control over the economy and his repeated calls for lower interest rates despite high inflation.

The dispute with the United States, focused on a tit-for-tat tariff row and Turkey’s detention of Brunson, helped turn the currency’s steady decline into meltdown.

It touched a record low of 7.24 to the dollar early on Monday, rattling global stock markets and threatening the stability of Turkey’s financial sector.

President Donald Trump doubled tariffs on Turkish metals exports to the United States last week prompting Turkey, which says it will not bow to threats, to raise tariffs on U.S. cars, alcohol and tobacco by the same amount on Wednesday.

A decree by Erdogan doubled Turkish tariffs on imports of U.S. passenger cars to 120 percent, alcoholic drinks to 140 percent and leaf tobacco to 60 percent. Tariffs were also doubled on goods such as cosmetics, rice and coal.

The White House called the Turkish response a step in the wrong direction and signaled a hard line on Brunson’s release.

Speaking in Washington, White House spokeswoman Sarah Sanders made clear the United States had no plan to remove the steel tariffs if Brunson were released though she said it could remove sanctions imposed on two senior Turkish officials.

The United States sanctioned Justice Minister Abdulhamit Gul and Interior Minister Suleyman Soylu, blaming both for being involved Brunson’s arrest and detention. Brunson is accused of backing a 2016 coup attempt against Erdogan, which Brunson denies.

Turkish Foreign Minister Mevlut Cavusoglu struck a somewhat conciliatory note, saying Turkey was ready to discuss its issues with the United States as long as there are no threats.

Despite the political tensions, the lira rebounded some 6% on Wednesday, strengthening to around 6.0 to the dollar.

A banking watchdog’s step to limit foreign exchange swap transactions also helped the currency.

“They are squeezing lira liquidity out of the system now and pushing interest rates higher,” said Cristian Maggio, head of emerging markets strategy at TD Securities.

“Rates have gone up by 10 percent … The central bank has not done this through a change in the benchmark rates, but they are squeezing liquidity, so the result is the same,” he said.

The chief executive of Turkey’s Akbank said the banking sector remained strong and the measures taken to support the market had started to have an impact, adding there was no withdrawal of deposits.

There was no resolution to the Brunson case in sight. On Wednesday, a court in Izmir, where Brunson is on trial, rejected his appeal to be released from house arrest. An upper court had yet to rule on the appeal, his lawyer told Reuters.

The lira had rebounded about 8 percent on Tuesday on news of a planned conference call on Thursday in which the finance minister will seek to reassure international investors. A Finance Ministry official said so far 3,000 people have signed up for the call.

Turkey’s banking sector remained strong and liquid and the measures taken to support the market have started to show impact, Turkey’s Akbank chief executive said and added there were was no withdrawal of deposits.

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