Having already lost a cumulative 40% of its value against the dollar since January, the Turkish Lira has continued to slide after experiencing a small rebound on August 31.

According to data released on September 3 suggests that inflation in Turkey hit a massive 18% in August, far higher than the official government target of 5%. The Turkish Central Bank has vowed to address the inflationary pressure by September 13; which has led to speculation that the Bank will significantly hike interest rates. The Central Bank’s apparent resolve is undermined by the resignation of the Deputy Governor and Monetary Policy Board member Erkan Kilimci, in a move that underscores the political friction between the government of President Recep Tayyip Erdogan and Turkey’s banking institutions.

The global currency markets have been reacting negatively to the news of galloping double-digit inflation in Turkey and remain jittery after Argentina entered into negotiations with the IMF, which suggests a broader emerging market crisis.

Turkey’s Treasury and Finance Minister, Berat Albayrak, recently committed to cutting inflation to single digits, which has led the markets to expect fiscal consolidation measures. In early August, all of Erdogan’s cabinet ministers were instructed to reduce spending by 30 %.

The IMF staff report on Turkey predicts external financing needs for 2018-2019 to the tune of €194.14 billion, a task that is not for the faint at heart given the surging cost of borrowing. The Turkish lira’s rapid devaluation is adding to the massive pressure currently being put on external financing.

Erdogan’s combative tone to describe the pressure put on the Turkish economy has done little to help the situation as he views the crisis as “an economic war” waged on Ankara primarily by the United States.

Washington and Ankara are locked in an escalating conflict as US President Donald J. Trump is demanding the release of Evangelical Protestant Pastor Andrew Brunson, who has been charged by Turkey with supporting terrorism. Brunson is scheduled to go on trial in October.

Voicing similar demands, Germany’s Foreign Minister Heiko Maas called on Erdogan to release a number of EU citizens arrested in the aftermath of an alleged coup attempt in July 2016. At least 50 German citizens are currently being held in Turkish prisons, of whom only seven have been charged with a crime.

Since the coup attempt two years ago, Ergodan has ordered the arrest of nearly 82,000 Turkish citizens, including 319 journalists – the highest number in the world. An additional 170,000 individuals, mostly civil servants, have been purged from the jobs for alleged ties to the coup plotters.