The Turkish Lira continued to lose ground on Monday in Asian markets on Monday morning, prompting central bank intervention.
By the time markets opened in Europe, the Lira had lost an additional 3%.
Shares in Japan, Hong Kong, Australia, and South Korea were down, as Turkey is a major economy exposed in dollarized debt. The lira crisis is also affecting the Argentine peso and the South African Rand.
The Turkish crisis has also pushed the Euro to a 13-month low against the US dollar.
In a Turkish version of “whatever it takes,” the Turkish central bank stepped in to guarantee liquidity in foreign exchange.
The Turkish Central Bank (CBRT) said on Monday that lenders will be allowed to borrow foreign exchange deposits in one-month maturities, in addition to one week. In addition, the Central Bank is easing reserve requirements in 250 points. It will now stand to 8% of liabilities.
The Central Bank also raised foreign exchange deposit limits for lira transactions for banks from €7.2bn ($8.2 billion) to €20bn ($22.8 billion), Anadolu reports.
Whether Turkish bank intervention alone will suffice is doubtful. The question now is how long will Turkey last, because foreign-exchange reserves are limited. If the policy crisis were to continue, the next logical step would be capital controls.
The widening gulf between the Washington and Ankara has been adding to the underlying pressure on the currency. On Friday, tension with Washington appeared to escalate as President Donald Trump doubled tariffs on steel and aluminium from Turkey. President Recep Tayyip Erdogan stepped in to suggest Ankara would not be “brought to its knees.”
The dispute with Washington is apparently over the detention of the American pastor Andrew Brunson in Turkey. Brunson is being accused of harbouring links with both the outlawed Kurdistan Workers’ Party and the Gulenist movement.
Markets fear contagion in Europe as the French BNP Paribas, the Spanish BBVA, and the Italian UniCredit are heavily exposed to Turkish debt. According to a report by the Financial Times published on Friday, the European Central Bank fears contagion of the Turkish financial crisis to Europe.
According to the Bank of International Settlements, Turkish banks have issued $148 billion dollar-denominated and €100 billion euro-denominated loans.