The Turkish lira yesterday hit record lows against the US dollar as strains with the US showed no sign of easing and fears grew over the exposure of European banks.
The lira was trading at 5.85 to the US dollar, a loss in value on the day of 5.5 percent. However, it rallied somewhat after earlier crashing about 12 percent through the 6.0 level for the first time in history, trading at one point above 6.2.
The lira has now lost more than one-third of its value against both the US dollar and the euro this year, with the currency battered by concerns over domestic economic policy and the political situation.
Turkey remains at loggerheads with the US in one of the worst spats between the two NATO allies in years over the detention for the past two years of US pastor Andrew Brunson and a host of other issues.
Talks in Washington this week failed to resolve the impasse, which has led both sides to slap sanctions on senior officials.
Meanwhile, markets are deeply concerned over the direction of economic policy in Turkey, where inflation has hit nearly 16 percent, but with the Turkish central bank reluctant to raise rates in response.
Turkish President Recep Tayyip Erdogan after winning June 24 elections with revamped powers tightened his control over the nominally independent central bank and appointed his son-in-law Berat Albayrak to head a newly empowered finance ministry.
Speaking to supporters in the Black Sea province of Rize late on Thursday, Erdogan brushed off concerns over the currency as campaigns against Turkey.
“There are various campaigns being carried out. Don’t heed them,” Erdogan said.
“Don’t forget, if they have their dollars, we have our people, our God. We are working hard. Look at what we were 16 years ago and look at us now,” he said.
Concerns were intensified yesterday by a report in the Financial Times that the supervisory wing of the European Central Bank (ECB) had over the past weeks began to look more closely at eurozone lenders’ exposure to Turkey.
The report said that the situation is not yet seen as “critical,” but Spain’s Banco Bilbao Vizcaya Argentaria SA, Italy’s UniCredit SpA and France’s BNP Paribas SA are regarded as particularly exposed after the Turkish currency lost more than one-third of its value this year, the newspaper reported, citing unidentified people familiar with the matter.
The risk is that Turkish borrowers might not be hedged against the lira’s weakness and could start to default on foreign-currency loans, the Financial Times said.
BBVA, UniCredit and BNP Paribas all declined to comment on the central bank’s concerns, along with the ECB, the newspaper said.
Additional reporting by Reuters and Bloomberg
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