« Turkey’s lira slid by more than 4 percent against the dollar on Thursday, the biggest decline since a currency crisis heightened in December, and stocks slumped after Russian troops invaded Ukraine » reports Ahval News.
The lira fell to as low as 14.44 per dollar, the weakest level in two months. It was trading down 4 percent at 14.37 against the U.S. currency at 1:52 p.m. local time. The main Istanbul BIST-100 share index dived 8.6 percent to 1,841.75 points. A circuit-breaker temporarily halted trade earlier in the day.
The conflict across the Black Sea to Turkey’s north is renewing concern for economic and financial stability in the NATO member. The lira slumped 44 percent against the dollar last year and inflation surged to a two-decade high 48.7 percent after global commodity prices jumped and President Recep Tayyip Erdoğan ordered the central bank to cut interest rates.
Erdoğan’s government is relying on lira stability to implement an economic programme to boost growth, employment, and exports ahead of elections scheduled for next year. More losses for the lira threaten to send inflation higher and crimp any economic expansion.
The central bank had pegged the lira at around 13.5 per dollar in 2022 by selling foreign exchange with state-run banks. It stepped up its defence of the lira this week, selling between $1 billion and $1.5 billion on Tuesday, after Putin ordered troops into eastern Ukraine. In December, it sold nearly $20 billion, and Erdoğan announced a plan to link lira deposits to the dollar to help reverse surging demand for foreign currency.
“They cannot continue the FX intervention long, given limited FX reserve buffers, so if the Russo-Ukraine crisis last long the central bank will either have to raise policy rates or let the lira go again,” said Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London.
The central bank’s reserves, net of liabilities including currency swaps with state-owned banks, lie deeply in negative territory. The central bank’s ability to defend the lira is also constrained by Erdoğan’s aversion to high interest rates. He has sacked three governors since 2019 by presidential decree and ordered the bank to cut rates to 14 percent from 19 percent late last year claiming higher borrowing costs were inflationary.
State banks have sold an estimated $2 billion to support the lira this week, Bloomberg reported on citing unidentified traders. Erdoğan’s government has transferred funds from the Treasury to bolster the banks’ capital this year.
In January, Turkey signed a currency swap deal with the United Arab Emirates worth almost $5 billion. But economists say the step is a stop-gap measure and no substitute for responsible monetary and economic policy.
On Thursday, analysts at ratings agency Standard & Poor’s said that the crisis in Ukraine threatened to send inflation in Turkey higher as global commodity prices spiked. Turkey imports nearly all the oil and natural gas it consumes. The average expectation is that the central bank will keep interest rates steady this year, but there is a high degree of uncertainty regarding this, Tatiana Lysenko, chief economist for emerging markets at S&P, told the Dünya newspaper.
Earlier in February, Fitch Ratings cut Turkey’s sovereign debt further into junk territory warning of the risk of further financial instability ahead of elections next year.
Each $10 a barrel increase in the price of oil will cost Turkey about $4 billion in extra imports, worsening a current account deficit widened by the rising cost of imported goods and materials. Turkey will also pay the price of a loss in Russian and Ukrainian tourists, who contributed almost a quarter of total visitors last year.
Erdoğan, who convened a security summit of senior officials in Ankara to discuss the crisis on Thursday, is seeking to balance relations with the West and Russia, with which Turkey has developed close ties over the past five years, including purchasing S-400 air defence missiles from Moscow. The crisis may force Erdoğan to realign with the West, Ash said.
« If Putin attacks full-scale, Erdoğan will have to ally with the West/Ukraine, and that means problems with Putin on energy, tourism, trade and Syria, » he said.
Clashes continue for control of military airport near Kyiv
Following Thursday’s deployment of Russian paratroopers in the military airport in Gostomel, 10 km from Ukraine’s capital Kyiv, clashes continue between Russian and Ukrainian forces.
Locals report explosions every 3 to 4 minutes, Ukrayinska Pravda reported.
Ukrainian officials say the Russian advance has been pushed back, but clashes continue.
The airport had come under Russian control by 7 p.m. local time, with support from military helicopters.
F-35 jets deployed to Estonia, Lithuania for first time
The United States has extended the stay of its existing troops in the Baltics and deployed F-35 fighter jets to Estonia and Lithuania, Reuters reported on Thursday.
The fifth generation stealth fighters were deployed in the Baltics for the first time.
Last year some 500 troops were sent to Lithuania, alongside Abrams tanks and Bradley armoured vehicles. They were scheduled to leave in April, but will now stay until a yet to be determined date.
The Pentagon decided to send another 7,000 U.S. troops to Europe as Biden announced sanctions, bringing the number of American troops in Europe to 14,000 since the Ukraine crisis began and the total troops in Europe close to 100,000.
Biden unveils new sanctions on Russia
U.S. President Joe Biden announced sanctions on Russia on Thursday, focusing on measures to impede Russia’s ability to participate in the global economy.
Sanctions will limit Moscow’s ability for business dealings in major currencies, including the dollar, euro, pound and yen, Biden said. New measures include sanctions on Russian banks, oligarchs, and high-tech sectors, he added.
Those sanctioned are “people who personally gained from the Kremlin’s policies”, Biden said. “And they should share in the pain.”
Sanctions will cut off more than half of Russia’s high-tech imports, according to the U.S. president.
Russia has not yet been cut off from the SWIFT payment system, which facilitates global transfers of money between banks.
Earlier, Biden had met with U.S. allies the Group of Seven on Thursday, and spoken with Ukrainian President Volodymyr Zelensky on Wednesday.
Ukraine loses control in Chernobyl site
Ukraine has lost control of the Chernobyl nuclear site following intense clashes with Russian troops, a presidential adviser told Associated Press on Thursday evening.
The current condition in the site of the world’s worst nuclear disaster is unknown, adviser Myhailo Podolyak said. “After the absolutely senseless attack of the Russians in this direction, it is impossible to say that the Chernobyl nuclear power plant is safe.”
Fighting also took place in Sumy and Kharkiv in northeast Ukraine, and Kherson and Odessa in the south.
Bomb hits Turkish ship off Odessa
A Turkish-owned ship was hit by a bomb off the coast of Oddessa, Turkey’s Maritime Directorate General announced on Thursday.
There were no casualties, and the ship did not request help.
The YASA JUPITER continued its journey towards Romanian waters, the directorate said.
NATO has troops, jets ready
NATO has strengthened its defences “in response to Russia’s massive military build-up”, and deployed “thousands of troops” to the eastern NATO member states, NATO Secretary General Jens Stoltenberg said in a press conference.
“We have over 100 jets at high alert protecting our air space, and more than 120 allied ships at sea from the high north to the Mediterranean,” Stoltenberg added.
Russia has “chosen the path of aggression”, the NATO chief said. “This is a grave breach of international law, and a serious threat to Euro-Atlantic security. I call on Russia to cease its military action immediately and respect Ukraine’s sovereignty and territorial integrity.”
NATO leaders will convene on Friday to “address the way forward”, Stoltenberg said.
Ahval News, February 24, 2022, Photo/Ozan KOSE/AFP