Turkish lira drops to record low as Erdogan dares U.S. to impose sanctions

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Turkey’s lira fell to a fresh record low past 8 per dollar, a key psychological level for investors, after President Recep Tayyip Erdoğan challenged the United States to impose economic sanctions on the country for its testing of Russian-made S-400 missiles.

The lira dropped to as low as 8.0506 per dollar on Monday. It was trading down 1.1 percent at 8.048 per dollar as of 9:25 a.m. local time in Istanbul.

“Whatever your sanctions are, don’t hesitate to apply them,” Erdoğan said in a speech on Sunday. “You told us to send back the S-400s. We are not a tribal state, we are Turkey.”

The United States has threatened possible economic and political reprisals against NATO ally Turkey after it took delivery of the air defence missiles last year. It has already excluded the country from a programme to develop and purchase the F-35 stealth fighter jet. Analysts say U.S. presidential elections in November have given Erdoğan’s government a window of opportunity to test-fire the weapons with little or no comeback.

Erdoğan confirmed on Friday that Turkey’s military test-fired the S-400, prompting condemnation from the Pentagon.

The testing of the Russian system was “not consistent with Turkey’s commitments as a U.S. and NATO ally,” Pentagon Spokesman Jonathan Hoffman said.

“The U.S. Department of Defense condemns in the strongest possible terms Turkey’s October 16 test of the S-400 air defence system — a test confirmed today by Turkish President Recep Erdoğan,” Pentagon spokesperson Hoffman said in a statement.

The lira has lost more than a quarter of its value this year, partly due to concerns among investors about Turkey’s deteriorating relations with the United States and other Western allies.

The currency also fell on Monday after the central bank surprised economists by leaving the benchmark interest rate unchanged late last week.

The bank kept its key interest rate at 10.25 percent on Thursday even as selling pressure on the lira mounted. Instead, it elected to widen the upper limit of its so-called interest rate corridor to 3 percentage points above the overnight lending rate, which stands at 11.75 percent. Investors say that the monetary policy is unorthodox and confusing.

The central bank has spent tens of billions of dollars of its foreign exchange reserves this year defending the lira, leaving them severely depleted. Erdoğan opposes higher interest rates – a key tool used by central banks across the world to stabilise currencies – saying they are inflationary.

Ahval

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