Turkish lira drops to record low as Erdoğan dares U.S. to impose sanctions
Turkey’s lira fell to a fresh record low past 8 per dollar, a key psychological level for investors, after President Recep Tayyip Erdoğan challenged the United States to impose economic sanctions on the country for its testing of Russian-made S-400 missiles.
The lira dropped to as low as 8.0677 per dollar on Monday. It was trading down 1.3 percent at 8.0635 per dollar at 1:46 p.m. local time in Istanbul.
"Whatever your sanctions are, don't hesitate to apply them," Erdoğan said in a speech on Sunday. “You told us to send back the S-400s. We are not a tribal state, we are Turkey.”
The United States has threatened economic and political reprisals against NATO ally Turkey after it took delivery of the air defence missiles last year. It has already excluded the country from a programme to develop and purchase the F-35 stealth fighter jet. Analysts say U.S. presidential elections in November have given Erdoğan’s government a window of opportunity to test the weapons with little or no comeback.
Erdoğan confirmed on Friday that Turkey’s military had test-fired the S-400. The statement prompted swift condemnation from the Pentagon.
The use of the Russian system was “not consistent with Turkey's commitments as a U.S. and NATO ally,” Pentagon Spokesman Jonathan Hoffman said. “The U.S. Department of Defense condemns in the strongest possible terms Turkey's October 16 test of the S-400 air defence system."
Sanctions imposed by the United States in 2018 for Turkey's detention of U.S. pastor Andrew Brunson on terrorism charges sparked a currency crisis that led to a deep economic recession. The economy was just recovering from the downturn when the COVID-19 pandemic erupted in March.
The United States also briefly sanctioned Turkey late last year, prompting more losses for the lira, in response to Erdoğan ordering military action against Kurds allied with the West against Islamic State (ISIS). Analysts say the odds of the United States levying more punishment on Turkey for its purchase of the S-400s would increase should Democratic candidate Joe Biden beat President Donald Trump in next month's elections.
The lira has lost more than a quarter of its value in 2020, partly due to concerns among investors about Turkey’s deteriorating relations with the United States, Europe and regional powers.
Erdoğan's government is embroiled in a spat with Greece over territory and has supplied weapons and Syrian mercenaries to support the Tripoli-based government in Libya against opposition forces backed by Egypt, Russia and the United Arab Emirates. It has done likewise in Azerbaijan's conflict with Armenia over the disputed enclave of Nagorno-Karabakh.
At the weekend, Erdoğan repeated criticism of French President Emmanuel Macron about his record on Islam, questioning his mental health, despite France recalling its ambassador to the country for consultations in protest at previous remarks.
The Turkish president said Macron needed "mental checks and accused him of being "obsessed with Erdoğan day and night".
Macron is a staunch supporter of Greece in its territorial spat with Turkey in the eastern Mediterranean, most recently backing a call by Athens this month for EU economic sanctions.
The lira also fell on Monday after the central bank surprised economists by leaving the benchmark interest rate unchanged late last week.
The bank kept its key interest rate at 10.25 percent on Thursday even as selling pressure on the lira mounted. Instead, it elected to widen the upper limit of its so-called interest rate corridor to 3 percentage points above the overnight lending rate, which stands at 11.75 percent. Investors say that the monetary policy is unorthodox and confusing.
The central bank has spent tens of billions of dollars of its foreign currency reserves this year defending the lira, leaving them severely depleted. Erdoğan opposes higher interest rates - a key tool used by central banks across the world to stabilise currencies - saying they are inflationary.
Turkey's economy is run by Erdoğan's son-in-law, Treasury and Finance Minister Berat Albayrak, who has said the country needs a competitive currency to help an export-led recovery.
Central bank data on Monday showed industrial confidence in the country rising to 108.1, the highest level since just prior to a currency crisis in the summer of 2018. But a central bank measure gauging the outlook for Turkish export orders fell.
Albayrak said on Monday that improvements in confidence in the retail industry, services and construction were adding to the positive outlook for the economy. He did not mention the lira.
(This story was updated with Macron spat in the 11th and 12th paragraphs.)