Turkey’s lira fell toward an all time low on Monday after U.S. President Joe Biden recognised the mass killing of ethnic Armenians in Ottoman Turkey as genocide, in a move that further soured fraught bilateral ties.
The lira dropped by 1.2 percent to 8.48 per dollar. That compared with a record low of 8.58 per dollar reached in early November.
Biden’s decision on Saturday to label the deaths of Armenians during World War I as genocide comes at a low point in relations between the two NATO members. His announcement prompted the Turkish foreign ministry to summon the U.S. ambassador to Ankara for a rebuke. Presidential spokesman Ibrahim Kalın said there would be a political response in the coming months.
The Turkish lira has slumped to successive record lows against the dollar since a currency crisis in 2018, which was sparked by another political fissure with the United States over the detention of an American pastor on terrorism charges. Former President Donald Trump had imposed sanctions to pressure Turkey to free him.
Washington and Ankara are also at odds over the latter’s purchase of S-400 air defence missiles from Russia, which NATO says are not compatible with the alliance’s defences. That has prompted the United States to exclude Turkey from a programme to develop and purchase the F-35 stealth fighter jet.
Turkey’s ability to respond politically to Biden’s decision is constrained by its economic troubles, including a crisis of confidence in the central bank, which has lost independence and come informally under presidential authority.
In 2011, Turkey froze bilateral relations and political meetings with France when its parliament approved a bill recognising the genocide. It also cancelled permission for French warships to dock and French military planes to land in Turkey. The United States runs a major NATO base at Incirlik in southern Turkey, where it stores nuclear weapons and conducts military missions to Afghanistan and Syria.
Among Turkey’s economic travails is inflation. It has surged to more than 16 percent, the highest in major emerging markets after crisis-hit Argentina, largely due to unorthodox economic policies followed by President Recep Tayyip Erdoğan’s administration. Those included engineering a borrowing boom last year through low interest rates. Annual price increases are expected to nudge higher in April, nearing the central bank’s benchmark interest rate of 19 percent.
The lira also declined on Monday after Central Bank Governor Şahap Kavcıoğlu signalled late on Friday that monetary policymakers had no plans to hike interest rates.
“Who is happy with high interest rates?” Kavcıoğlu said in his first television interview since Erdoğan appointed him in mid-March. Any rate increase would send a negative signal to industry, he told NTV.
Prior to his appointment, Kavcıoğlu sympathised with Erdoğan’s unorthodox view that higher interest rates caused inflation. His predecessor, former finance minister Naci Ağbal, had raised rates from 10.25 percent to rein in price growth and to defend the lira during his four-month tenure.
Kavcıoğlu also defended the central bank’s sale of tens of billions of dollars of its foreign currency reserves last year, saying the lira would have been much weaker without the transactions. He labelled sales of liras by investors as “attacks” that began with the 2018 currency crisis.
Turkey’s opposition parties are calling on the government to account for the losses in the foreign exchange reserves, which they say total $128 billion. The reserves, net of liabilities including cross-currency swaps conducted with state-run banks last year, stand deeply in negative territory, undercutting the bank’s ability to defend the lira.