The lira has reached a new low today (Friday) in its biggest fall in a single day since Turkey’s 2001 financial crisis.
At its lowest level lira traded at 6.801 against the US dollar — a considerable decline from 5.54 at the end of the Wall Street trading on Thursday.
This plunge has caused food, fuel and rental prices to surge across the country.
The state pipeline operator raised the price of natural gas used in electricity production by a staggering 50 percent last week.
President Tayyip Erdogan blamed the United States for the plunge in a speech last night, but why is the lira falling?
In his speech, Turkey’s president Erdogan lay the blame for the crash at the US’s door saying: «If they have their dollars, we have our people, our God.“
Worries over the worsening relationship with the US have contributed to the potential economic crisis.
Against the dollar, the lira has lost 35 percent of its value this year, and Donald Trump announced new higher tariffs for Turkey amidst the tensions.
President Donald Trump said he had authorised higher tariffs on imports from Turkey, imposing a 20 percent duty on aluminium and 50 percent one on steel.
Donald Trump tweeted: “I have just authorised a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminium will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!”
After the US President’s tweet, shares of Turkish steelmakers Kardemir and Erdemir plunged as much as eight percent and 9.9 percent respectively.
Tensions have risen between the two NATO allies over Ankara’s detention of an evangelical pastor alongside other diplomatic issues.
Loyal supporters of President Erdogan are also blaming the US for the lira’s crash — as the newly re-elected president appears to maintain his popularity.
Not everyone shares the President’s optimism as main opposition Republican People’s Party (CHP) leader, Kemal Kilicdaroglu, said ill-considered government policies meant Turkey had to borrow to pay off the interest on existing debt.
«The lira is melting like a candle against the dollar,» he tweeted.
Investors are also worried about the state of borrowing within Turkish companies — as loans were made to support a construction boom.
The weakening state of the lira now means that there is more to pay back.
Also contributing are concerns around the fact that President Erdogan remains in control of the central bank — with the power to appoint bankers who set interest rates.
Investors have piled their money into dollar and yen in the wake of concern over Turkish economic crash.
Global stocks have slumped as concerns grow over Turkey’s crisis — with European stocks bearing the brunt of the crash.
The euro has fallen to its lowest level since July 2017, whilst the dollar rallied amidst pressure placed on Ankara and Moscow.
In his most recent speech, President Erdogan has said: «The dollar cannot block our path. Don’t worry.
«However, I say it once again from here, if there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks. This is a national, domestic battle,» he said.
«This will be my people’s response to those who have waged an economic war against us.»