Turkey is a ‘target of economic war’, Erdogan says

The lira went into free-fall sinking more than 10 percent

The lira went into free-fall sinking more than 10 percent

At one point during the day, it had fallen more than 20 percent.

One of the triggers of the turmoil has been a standoff with the USA over a detained American pastor that Turkey, a North Atlantic Treaty Organisation ally, has put on trial for espionage and terror-related charges linked to a failed coup attempt in the country two years ago.

"This will be the response to those who have declared an economic war", he said, blaming Turkey's woes on what he described as an "interest rate lobby" seeking to push the country to higher rates.

"Change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks".

The warning comes after the Turkish lira fell by an astounding 20 per cent on Friday. Municipal elections are not until April 2019.

"The TRY is in a full-blown currency crisis as the number of negative stories increases", says Morten Lund with Nordea Markets.

Erdogan has been putting pressure on the central bank not to raise interest rates in an attempt to help borrowers. USA stocks were also rattled.

Turkey was facing artificial financial volatility, Erdogan said, and people should not pay close attention to foreign exchange prices, and should instead focus on the "big picture".

Presenting the government's new economic model, he said the next steps of rebalancing would entail lowering the current account deficit and improving trust.

Erdogan has blamed outside forces for trying to bring down Turkey's economy. The president, after all, chose a family member to head this influential position for a reason.

In modern economies, central banks are meant to be independent of governments to make sure they set policies that are best for the economy, not politicians.

Will Diplomatic Tensions Heighten the Currency Challenge?

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High-level meetings in Washington between US and Turkish officials over Brunson ended this week, apparently without a resolution.

Trump tweeted that the latest tariff decision came as Turkey's currency, the lira, "slides rapidly downward against our very strong Dollar".

For Trump, it shows just how quickly his "America First" isolationist agenda can bite back.

The new duties on Turkey are double the level that Trump imposed in March on steel and aluminium imports from a range of countries.

Investors piled into "safe" government debt, with German yields hitting three-week lows and the yield on the benchmark USA 10-year Treasury note falling to 2.88822 percent.

Relations are also tense because of new U.S.

Turkey and the U.S. are now experiencing rocky relations following Washington's imposition of sanctions on Interior Minister Suleyman Soylu and Justice Minister Abdulhamit Gul for not releasing Brunson.

While the International Monetary Fund has a history of lending a hand to Turkey, Erdogan is wary of the organization, creating barriers to a bailout. That move would collide with Erdogan's beliefs that see him consistently slamming interest rate hikes. The currency has fallen more than 40 per cent this year, fanning worries about a full-blown economic crisis.

"In that sense, the Turkey situation can be a contagion not only in Europe but across emerging markets", Anderson said. And more than one-third of that debt is coming due within the year.

The Rand and Lira are often placed in the same emerging market currency bracket by investors and therefore risk sentiment impacting one can often spill over into the other.

The panic has prompted investors to dump eurozone bank shares, with BBVA, UniCredit, and BNP, which have significant operations in Turkey, the worst effected.

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