Turkish lira drops to new record low overnight | City A.M.

The Turkish lira fell to an all-time low of 7.2 against the dollar, after comments by President Recep Tayyip Erdogan over the weekend failed to calm investors.

Last night the troubled currency dropped to a low of 7.24, although pulled back to around 6.92 to the dollar after finance minister Berat Albayrak said the country would begin implementing its economic action plan on Monday morning.

The central bank will cut the lira’s reserve requirement ratio by 250 basis points for all maturity brackets and lowered reserve requirement ratios for non-core FX liabilities by 400 basis points for maturities up to three years.

This will free up L10bn, and the equivalent of $3bn of gold liquidity in the financial system, the bank said. It also pledged to provide “all the liquidity banks need”.

But Jasper Lawler at London Capital Groups, said traders “will be bracing themselves for another day of hectic trading on Monday” and warned of contagion hitting European banks.

He added: “While the weakening of the Turkish economy is by no means a revelation, an admission of concern by the ECB over the possible impact of contagion was unexpected and weighed heavily on demand for riskier assets.

“Contagion risk centres on Italian, Spanish and French banks exposed to Turkish foreign currency debt, namely BBVA, UniCredit and BNP Paribas. These banks are thought to have the greatest exposure to Turkish debt and their loans are unhedged.”

Andrew Kenningham, chief global economist at Capital Economics, agreed, telling the BBC: “The plunge in the lira, which began in May, now looks certain to push the Turkish economy into recession and it may well trigger a banking crisis.

However he noted “the wider economic spillovers should be fairly modest, even for the euro zone.”