On August 16th, the Turkish lira continued its recovery after the announcement of a $15 billion funding package from Qatar.
On August 13th, the Turkish lira reached a historical low against the dollar, after dropping about 45% during 2018. It has since started to recover.
The latest strengthening of the lira comes after Qatar’s funding. Tamim bin Hamad Al Thani, the Amir of Qatar, tweeted: “Today, in the framework of important negotiations with His Excellency President Erdogan in Ankara, we announced a package of deposits and investment projects worth $15 billion in this country, which has a productive, strong and robust economy.”
In answer, Turkish President Tayyip Erdogan tweeted: “On behalf of the Turkish people, I sincerely thank Sheikh Tamim and the Qatari people for standing by Turkey. There is no doubt that our strong relations with the friendly and brotherly state of Qatar will continue to evolve in many areas.”
The lira has come under pressure due to a diplomatic fallout over the arrest of American Pastor Andrew Brunson, as well as the purchase of S-400 Triumf missile systems from Russia. It was further reinforced after Erdogan perceive control of Turkey’s central bank and the strong US dollar. The Turkish President accused the US of waging an economic “war” against the country.
The decrease in value began on August 1st, when the US imposed sanctions on two Turkish ministers. However, the decrease in value of the lira became rapid after US President Donald Trump increased tariffs on Turkish steel by 50% and aluminum by 20%. To which Turkey responded with increase tariffs of their own on US goods such as automobiles, electronics, alcohol and tobacco products.
The pressure on the lira began easing as early as August 13th, when the Turkish central bank pledged to undertake “all necessary measures” to protect the economy.
After the Central Bank’s actions and the counter-tariffs imposed by Turkey, the lira recovered some of its value. However, Business Insider cited Hussein Sayed, the chief market strategist at FXTM, who on August 16th had the following to say in an email: “Such measures may only provide short-term relief and policymakers need to address the longer-term challenges that will face the country. With inflation expected to skyrocket in the coming months, a current account deficit that exceeds $50 billion and more than $16 billion of debt maturing in 2019, investors fear that the currency crisis will turn into a debt crisis. Even if tensions between the US and Turkey are resolved, investors still need to see serious fiscal and monetary measures to restore confidence.”
However, on August 16th, US Treasury Secretary Steven Mnuchin said that the US is ready to impose Turkey with even more sanctions. “We put sanctions on several of the Cabinet members,” Mnuchin said on August 16th during a Cabinet meeting at the White House. “We have more that we’re planning to do if they don’t release him quickly.”
President Trump said that Turkey “has not been a good friend” to the US and that his administration had secured the release of a Turkish citizen from an undisclosed country on behalf of Erdogan, however Turkey refused to reciprocate the action by releasing Andrew Brunson.
On August 16th, in a conference call with around 6,000 investors Turkish Finance Minister Berat Albayrak, who is also Erdogan’s son-in-law, said that Turkey had no plans to bring in capital controls such as restricting bank withdrawals and the movement of money in and out of the country. Turkey also was not planning to seek help from the International Monetary Fund.
Albayrak, when speaking to the investors, claimed that Turkey would not hesitate to provide support to the banking sector, which was capable of accessing funds itself during the current turmoil in financial markets. He added that deposit withdrawals by panicked investors remained low and manageable.
Despite the lira restoring its value a fair bit after Albayrak’s conference call, the announcement of possible further US sanctions halted its increase in value slightly. Turkey appears to be on the right track, due to its policy, as well as in no small part thanks to Qatar’s funding.