ANKARA • President Recep Tayyip Erdogan moved to shore up alliances in Europe and the Middle East, easing pressure on the battered lira, as a stand-off and tariff war between Turkey and the United States deepened.
Efforts to rally support and bolster domestic markets include a call yesterday between Turkish Finance Minister Berat Albayrak and international investors.
Mr Erdogan also spoke with French President Emmanuel Macron, a day after talks with German Chancellor Angela Merkel and a US$15 billion (S$20.7 billion) pledge of support from Qatar.
Turkey's effort to bolster its political alliances came in tandem with steps taken by the authorities to support the banking system and curb short-selling of the lira.
One of the world's worst-performing currencies this year, the lira climbed for a third day along with emerging-market currencies, even after the White House said new tariffs on Turkish goods would remain regardless of whether American pastor Andrew Brunson, held under house arrest in Turkey on charges of terror and espionage, was freed.
Helping to support the currency, the central bank did not offer any funding through its one-week repo rate at 17.75 per cent for a fourth day, forcing lenders towards its more expensive overnight rate of 19.95 per cent.
US President Donald Trump imposed 50 per cent tariffs on imported Turkish steel last week after talks to release Mr Brunson broke down, effectively cutting off Turkish steel-makers from their largest foreign market.
Pushing back against the US pressure, Turkey sharply raised tariffs on American goods on Wednesday.
After hitting a record low of 7.24 against the US dollar this week, the lira has benefited from the central bank's steps to underpin a currency hit by concerns about Mr Erdogan's influence over monetary policy and the bitter dispute with Washington.
JP Morgan said moves by the Turkish authorities showed they were committed to stabilising the currency with technical measures such as restricting foreign exchange swaps and cancelling repo auctions to push up the average cost of bank funding.
"Yet at the same time (the Turkish authorities) are reluctant to adopt orthodox policy frameworks," it said. "We suspect that there are diminishing marginal returns to additional technical measures so long as they are not accompanied by a fundamentally oriented policy package."
Mr Ehsan Khoman, head of MENA research and strategy at MUFG Bank, said he expects the currency's relief to be short-lived, prompting the central bank to hike borrowing costs "imminently in order to rebuild credibility".
Investors and analysts say the support from the likes of Qatar will help Turkey buy time but does not replace the need for policy actions to contain double-digit inflation and a mass of foreign-currency debt. That is why the upcoming presentation by Mr Albayrak, Mr Erdogan's son-in-law, is so critical.
Mr Albayrak assured international investors yesterday that Turkey would emerge stronger from its currency crisis, insisting that the country's banks were healthy.
In the conference call with thousands of investors and economists, he said Turkey fully understood and recognised all its domestic challenges but was dealing with what he described as a market anomaly.
Mr Erdogan's overtures to Europe suggest he is prepared to mend ties strained by past diplomatic clashes, including his accusation that Dr Merkel's government was engaging in "Nazi practices".
The pledge by Qatar, on the other hand, rewards the President for standing by the gas-rich Gulf country against a Saudi-led boycott backed by Mr Trump.
Qatar said the financial package would come in the form of "projects, investments and deposits". It did not give details.
Meanwhile, US and European intelligence and counterterrorism officials said on Tuesday the escalating tensions between Mr Erdogan and Mr Trump could jeopardise information-sharing and law enforcement cooperation between Turkey and the US as they fight the Islamic State in Iraq and Syria (ISIS).
A senior US intelligence official and a senior European counterterrorism official expressed concern that Turkey would withhold information about suspected ISIS fighters and intelligence operations to root out extremists in Syria.
BLOOMBERG, NYTIMES, REUTERS
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