Asian, European stocks tumble as Turkish lira sinks further

Turkish President Tayyip Erdogan addresses members of his ruling AK Party in Rize

Asian, European stocks tumble as Turkish lira sinks further

The euro fell to a one-year low against the dollar on Monday, and shares in Europe's major banks also dropped.

"As of Monday morning, our institutions will take the necessary actions and will share the necessary announcements with markets", Albayrak was quoted as saying while adding that the plan would centre on "the state of our banks and the small and medium size enterprises" most affected by the lira's plunge. "But everything must be done to ensure an independent central bank", Merkel said during a news conference in Berlin, according to Reuters. It had already fallen more than 40% in the past year.

Investors globally are anxious about the damage spreading and have been prompted to sell riskier assets - including Asian stocks and emerging market currencies.

In the interview with Hurriyet newspaper, Albayrak described the lira's weakness as "an attack" - echoing Erdogan, who is his father-in-law.

Turkey is facing a deepening economic crisis, as the Lira fell sharply by about 22% in Friday's early morning trading.

"What is the reason for all this storm in a tea cup?" Erdogan said. "There is no economic reason for this".

Turkish President Recep Tayyip Erdogan this morning claimed the country was under economic "siege", accusing the United States of trying to "stab it in the back".

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"I am specifically addressing our manufacturers: Do not rush to the banks to buy dollars". "You should know that to keep this nation standing is. also the manufacturers" duty".

"The fluctuation in the Turkish Lira is a plot against Turkey, but the Turkish people will not give in", the Turkish president defiantly said on Sunday in a live speech in northwestern province of Trabzon, sharply criticizing the United States of waging an "economic war" against his country.

It's been a rough few days in the world's emerging markets, led by a currency crisis in Turkey. Inflation has leapt to over 15%, a 10-year high, and ordinary citizens are feeling the pinch.

Investors are anxious that Turkish companies that borrowed heavily to profit from a construction boom may struggle to repay loans in dollars and euros, as the weakened lira means there is now more to pay back.

Donald Trump's administration hit Turkey's justice and interior ministers with sanctions last week.

Tensions between Turkey and the United States have been high in recent weeks due in part to North Carolina Pastor Andrew Brunson's arrest and detention in the country.

Trump said via a tweet that the tariff on aluminium imports will be increased to 20 per cent and the tariff on steel imports will be raised to 50pc as the Turkish Lira "slides rapidly downward against our very strong Dollar!"

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What are officials doing about it?

Isik said the lira's current levels would add between 4 and 5 percentage points to headline inflation in coming months, pushing it up to around 21 percent in September from almost 16 percent last month.

Erdogan, who has called himself the "enemy of interest rates", wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing.

"A mid-meeting rate hike and tightening of monetary policy may help to avert the lira's decline, to some extent", he added. "Without Turkish cooperation, US goals in Syria, Iran, Russia, and even Europe become more hard".

Capital Economics warned in a note on Friday that Spain, Italy, and France were likely to be the worst hit by the Turkish currency crisis because of the exposure of their banking systems.

Analysts have given Turkey just days to resolve the crisis before it spills over into longer-term implications for the country's financial stability, with the contagion threatening banks including HSBC. In particular, the report flags that Spain's BBVA, Italy's UniCredit and France's BNP Paribas, all of which have significant operations in Turkey, are especially exposed.

The cycle is, in the jargon, "late stage" and so any sign of danger will be an excuse to sell assets that appear at all risky.

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