Britain’s FTSE dips as Turkey’s lira crisis shakes world markets

Britain’s FTSE dips as Turkey’s lira crisis shakes world markets”

SYDNEY, Aug 13 (Reuters) - Asia share markets skidded and the euro hit one-year lows on Monday as a renewed rout in the Turkish lira infected the South African rand and drove demand for safe harbours, including the us dollar, Swiss franc and yen.

European stocks fell in early trade on Monday, with a pan-European index of shares down half a percent and the banking stock index as much as 1.2 percent lower.

A plunge in the South African rand and a slump in the Mexican peso were symptoms of the growing contagion in emerging-market currencies Monday as the financial turmoil in Turkey sapped demand for developing-nation assets. Shares in Asian EM markets including China, Indonesia and the Phillipines have all lost ground.

The markets began to recover Monday, however, when Turkey's Central Bank said it was ready to take "all necessary measures" to help Turkish banks manage their liquidity. Meanwhile there are concerns about political interference with the "independent " central bank, especially as the president appointed his son-in-law as finance minister.

They said that could be the first step toward tightening policy via an interest rate corridor, an instrument used in previous years, rather than increasing the benchmark rate. "Without Turkish cooperation, US goals in Syria, Iran, Russia, and even Europe become more hard".

The moves will free up 10 billion lira, $6 billion, and $3 billion equivalent of gold liquidity in the financial system, the bank said.

While the reserve measures should ease worries over financial stability, they will have no direct impact on the lira because they do not affect banks' foreign exchange positions, BNP Paribas strategist Erkin Isik said in a note. This time last month it was at 4.8450.

In his speech Sunday Erdogan, repeated his accusation that the imposition of further tariffs by the United States is tantamount to "economic warfare", and warned that the USA stance could see a geopolitical shift in the North Atlantic Treaty Organisation member's alliances.

Turkey's central bank, perhaps under the influence of a president who has declared himself an "enemy" of higher interest rates, is yet to raise interest rates in response to the crisis. "These banks are thought to have the greatest exposure to Turkish debt and their loans are unhedged".

It was down roughly 0.5 percent to trade at $1.146 on Friday morning.

Turkey has drafted an economic action plan and has started implementing it "as of tonight" to ease investor concerns, Treasury and Finance Minister Berat Albayrak tweeted Sunday night.

Market analysts broadly welcomed his comments but said investors wanted to see action. Inflation is spiralling (currently more than 15%), Turkish companies are saddled with foreign debt and the country has one of the world's largest current account deficits in proportion to its economic output, heightening fears of a debt crisis.

Turkey's banking watchdog BBDK in a statement said it was limiting banks' foreign exchange swap transactions.

The underlying economic cause for the crisis is simply a lack of confidence in Turkey's economy.

Albayrak described the Lira's weakness as "an attack", echoing President Erdogan, who is his father-in-law.

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