Central Bank offers liquidity assistance but no rate hike

Turkey’s Central Bank on Monday sought to calm markets rattled by the precipitous plunge of the Turkish lira as a defiant President Recep Tayyip Erdoğan chastised the U.S. for seeking to stab Ankara “in the back”.

A dispute between NATO allies Turkey and the United States — which reached new intensity over the detention of an American pastor — has hammered the lira and also raised questions over the future partnership between Washington and Ankara.

As the latest developments caused the lira to plunge further in value, investors fretted over potential economic contagion from Turkey, particularly to European banks.

Lira’s 16% tumble

The already embattled Turkish lira tumbled some 16% against the dollar on Friday as U.S. President Donald Trump said he had doubled tariffs on steel and aluminium from Turkey. “We are together in NATO and then you seek to stab your strategic partner in the back. Can such a thing be accepted?” Mr. Erdoğan said at a conference in the capital Ankara.

After Mr. Erdoğan’s speech, the lira was trading back at 6.9 to the dollar, a loss of 7% on the day, recovering from even sharper losses in earlier Asian trade where it struck a record low of 7.2362 to the greenback.

In its first statement since what was dubbed “Black Friday” in Turkey, the Central Bank said it was ready to take “all necessary measures” to ensure financial stability, promising to provide banks with “all the liquidity” they need. The bank also revised reserve requirement ratios for banks, in a move also aimed at staving off any liquidity issues. But to the dismay of markets, the statement gave no clear promise of rate hikes.

Mr. Erdoğan indicated that he was in no mood to offer concessions to the United States in one of the worst spats between the two NATO allies in years. He said Turkey was facing an “economic siege”, slamming the currency movements as an “attack against our country”. Mr. Erdoğan has been sanguine over the punitive measures announced by the U.S., saying that while Turkey’s relationship with Washington is at stake, it will look for other partners.

‘Tools of exploitation’

Mr. Erdoğan on Saturday described interest rates as a “tool of exploitation”, in remarks unlikely to impress the markets.

The Interior Ministry launched an investigation into 346 social media accounts on grounds of “provocative sharings”, the state-run Anadolu news agency reported.

American pastor Andrew Brunson has been held since October 2016 on terror and espionage charges and, if convicted, could face a jail term of 35 years. Mr. Trump has described his detention as a “total disgrace” and urged Mr. Erdoğan to free him immediately.

A delegation led by Turkish Deputy Foreign Minister Sedat Önal failed to secure a deal last Wednesday in talks in Washington on a number of issues including Mr. Brunson.

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