Turkey doubles tariffs on some US imports while lira rebounds
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Turkey doubled tariffs on some US imports including alcohol, cars and tobacco yesterday in retaliation for US moves, but the lira rallied further after the central bank鈥檚 liquidity moves had the effect of supporting the currency.
Ankara acted amid increased tension between the two NATO allies over Turkey鈥檚 detention of a Christian American pastor and other diplomatic issues, which have helped send the lira tumbling to record lows against the dollar.
The currency has lost nearly 40 percent against the dollar this year, driven by worries over President Tayyip Erdogan鈥檚 growing influence on the economy and his repeated calls for lower interest rates despite high inflation.
It rebounded some 6 percent yesterday, briefly strengthening to less than 6.0 against the dollar, after the central bank squeezed lira liquidity in the market, effectively pushing up rates and supporting the currency.
Optimism about better relations with the European Union after a Turkish court released two Greek soldiers pending trial and a banking watchdog鈥檚 step to limit foreign exchange swap transactions have also helped the lira.
鈥淭hey are squeezing lira liquidity out of the system now and pushing interest rates higher,鈥 said Cristian Maggio, head of emerging markets strategy at TD Securities.
鈥淩ates have gone up by 10 percent ... The central bank has not done this through a change in the benchmark rates, but they are squeezing liquidity, so the result is the same,鈥 Maggio said.
The lira firmed as far as 5.75 against the dollar yesterday in a move initially triggered by the Turkish court decision on the Greek soldiers who faced espionage charges.
A treasury desk trader at one bank said this showed relations with the EU could recover 鈥渨hile tense relations continue with the USA.鈥
The lira was also helped by a step from the banking watchdog BDDK, cutting the limit for Turkish banks鈥 forex swap, spot and forward transactions with foreign banks to 25 percent of a bank鈥檚 equity.
鈥淩emarkable turnaround,鈥 Tim Ash, Bluebay Asset Management senior emerging markets analyst, wrote in a client note. 鈥淭hey are killing offshore lira liquidity to stop foreigners shorting the lira,鈥 he said.
The lira had rallied about 8 percent on Tuesday on news of a planned conference call today in which the finance minister will seek to reassure international investors. A finance ministry official said so far 3,000 people have signed up for the call.
Turkey鈥檚 banking sector remained strong and liquid and the measures taken to support the market have started to show impact, Turkey鈥檚 Akbank chief executive said, and added there were was no withdrawal of deposits.
A decree signed by Erdogan doubled Turkish tariffs on passenger cars to 120 percent, on alcoholic drinks to 140 percent and on leaf tobacco to 60 percent. Tariffs were also doubled on goods such as cosmetics, rice and coal.
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