Daily Times

Turkey’s lira has hit its weakest level against the dollar in more than two months after the U.S. Senate committee backed legislation on Wednesday to impose sanctions on Turkey, it would further aggravate the ties, which are already strained with Washington. It is expected that the central bank may further cut its benchmark rate.

That is exactly what happened and led to the disquieting situation, where Washington is taking punitive action against the Turkish political leadership, its energy industry and the financial system for its military action against Kurdish forces in northern Syria.

The pressure on the currency continued for its fourth straight day. The Turkish lira has weakened more than 11% this year after a currency crisis declined sharply its value by 30% last year. The currency deteriorated to 5.9090 by 0734 GMT from a close of 5.8880 on Tuesday and it would further affect the Turkish economy if it extends its operation in northeast Syria.

The United States has moved to punish Turkey when it decides to purchase Russian S-400 missile defense systems and imposes sanctions on Ankara. Washington was also incensed by Turkey’s military offensive into northern Syria against U.S.- allied Kurdish forces in the battle against Islamic State (ISIS).

Turkish President Tayyip Erdogan on Sunday said Turkey could consider shutting down the Incirlik airbase in response to the potential U.S. sanctions.

The Senate overwhelmingly approved a $738-billion defense-spending bill, which authorizes the U.S. President Trump to implement the sanctions on Turkey, prohibits the delivery of F-35 jets to the NATO ally over the S-400 purchases and consents for the lifting of an arms embargo on Cyprus.

The Turkish Foreign Ministry has resolutely responded over the US legislation and termed the U.S. Senate to demonstrate a disrespectful outlook for Ankara’s sovereign decisions. Congress has adopted an irrational and hostile attitude toward Turkeyand that the threatening language is unacceptable and will never thwart from protecting its national security and defense of the nation-state.

The lira seemingly “reflects the flux in the U.S.-Turkey relationship and the market sentiments moves the markets that sanctions are still coming down the pipe on Turkey from Congress,” said Tim Ash of BlueBay Asset Management.

That is exactly what happened and led to the disquieting situation, where Washington is taking punitive action against the Turkish political leadership, its energy industry and the financial system for its military action against Kurdish forces in northern Syria

Turkey’s benchmark stock index suffered a slide by 0.45% in early trade. Its yield, which moves in the reverse direction, declined to 12.44 % below from 12.52 % return on its benchmark.

Interesting enough, both Presidents have expressed their special rapport between them but the U.S. lawmakers have bitterly chastised President Trump for what they see as Trump has largely shielded Turkey from the repercussions of sanctions.

Subsequently, the Trump administration refrained from approving a resolution passed by the Senate recognizing the mass killings of more than a million Armenians by Ottoman Turks a century ago termed as genocide.

The growing tension between Turkey and the United States have left the investors to worry about the impact of narrowing real interest rates in the Turkish economy, which have already fallen below levels in most emerging markets after consecutive rate cuts.

The Turkish central bank has slashed its key rate to 12% since July in order to rebound from the recession and economic recovery brought by the currency crisis – in order to improve economic predictability. The annual inflation rate stands at 10.6% in November and the real rate remains at around 1.4%.The Turkish lira fell to 6.47 against the U.S. dollar and market watchers described the sudden dwindling of the lira as a “flash crash” as it sneakily approaching the level of about 6 against the dollar when it was adversely hit in late May.The currency crisis almost wiped out 30% off the lira’s value in 2018, while its value deteriorated 9% this year.

In a recently concluded Kuala Lumpur Summit in the Malaysian capital, the leaders of Islamic countries have specifically discussed the pressures and threats facing Muslim Ummah including a coup attempt, economic terror and slander.

The summit was attended by hundreds of government officials, businesspersons, representatives of civil societies and experts from different sectors across the Muslim world.

In his opening address, Iranian President Hassan Rouhani has called upon Muslim Ummah to be cognizant of the lurking threats of America and its global clout. He urged, “The American economic regime, and dollarization of national and global economies, have provided the United States with the possibility of advancing its hegemony under the threat of sanctions and economic terrorism”.

Turkish President Recep Tayyip Erdogan has emphasized reducing dependence on the US dollar, calling on Muslim countries to “free bilateral trade from foreign exchange pressure”. He prescribed the prescription by stressing, “Instead of trade with foreign currencies, we would like to do foreign trade with our national currencies”. President Erdogan is quite optimistic about “developing alternative payment systems with countries like Russia, China, and Brazil.”

The Turkish lira plummeted its value against the dollar last year. It adversely hit the country and the currency’s spiraling decline caused Turkey to fall into recession. The events took place at a time when the relations between the two countries, the U.S and Turkey were at the core of tension. This was one of the worst economic crises that Erdogan has ever suffered and endured a deeper crisis in his long rule.

The writer is a freelancer