Turkey Seeks to Calm Financial Markets as Lira Plummets

On Monday, August 13, the Central Bank of Turkey injected cash into the country's banks to curb the currency crisis exacerbated by concerns over President Recep Tayyip Erdoğan's economic policies and economic and diplomatic disputes with the United States. The value of the Turkish lira has significantly fallen over the past week, and on Monday, as the Central Bank's actions failed to restore investor confidence, it dropped another seven percent. Stock prices in global financial markets briefly fell due to this instability, and the currencies of other emerging economies like South Africa and India also saw significant declines, raising concerns about the spread of this economic problem. On Sunday, after Erdoğan reiterated his economic policies and continued confrontations with the U.S., the lira fell to its lowest level at 7.23 lira against one dollar. Erdoğan stated on Monday in his latest speech, "Turkey is facing an economic siege. We will take necessary actions against these attacks and continue to do so." He threatened to seek new alliances, indirectly hinting at closer ties with Russia, and warned that if investors withdraw foreign currencies from banks, he would take severe actions. The Turkish president dismissed the possibility of raising interest rates, claiming it could reduce economic growth. However, independent experts argue that raising interest rates is essential for stabilizing the national currency, and the president's aggressive policies are one of the reasons for investors' concerns. Erdoğan has extensive powers under new laws and has used his influence to pressure the Central Bank not to raise interest rates. On Monday, the Central Bank announced a series of measures aimed at "providing all the cash that banks need," but did not mention the possibility of increasing interest rates. The goal of these measures is to further float the financial system, reduce concerns about banks' problems, and continue lending to individuals and businesses. Independent experts believe that the Central Bank's actions will not be sufficient and will only have a temporary effect if interest rates are not raised, aiming merely to calm the domestic atmosphere. The lira's value against the U.S. dollar has decreased by 45 percent this year. Part of the concern regarding Turkey is similar to that of other emerging economies. Due to rising interest rates in the U.S., investors are pulling their money out of these countries, which have seen significant growth in recent years but are considered risky. However, Turkey's situation is worse than other countries in this group because one of the main factors of its economic growth has been borrowing foreign currencies. This makes the fall in the value of the lira more painful, increasing the cost of debt repayment for companies and banks, and may lead to bankruptcies. One of the main concerns for investors is that the government may impose restrictions on the circulation of money to prevent capital flight. Berat Albayrak, Turkey's finance minister and Erdoğan's son-in-law, stated on Sunday that the government does not intend to seize foreign currencies in bank accounts or convert this money into Turkish lira. Turkey's economic problems have been exacerbated by its dispute with the U.S., centered around the continued detention of an American pastor on charges of espionage and terrorism. In response to this action, the U.S. has imposed economic sanctions on two Turkish ministers and doubled tariffs on steel and aluminum imports from Turkey. Turkish Foreign Minister Mevlüt Çavuşoğlu stated on Monday that the U.S. cannot achieve its goals by applying pressure and sanctions on Turkey.