ISLAMABAD: Pakistan on Monday expressed solidarity with Turkey as the country grapples with a currency crisis that saw the lira plunge as much as 20% last week against the US dollar.
The Turkish lira has nosedived after a political clash with the United States intensified and investors fretted about the Turkish government’s lack of action to tackle the problems plaguing its economy.
The Foreign Office issued a statement expressing Pakistan’s opposition, in principle, to imposition of unilateral sanctions against any country.
“The solution to any and all issues should lie in dialogue, mutual understanding and goodwill. Any steps or actions to the contrary only undermine the peace and stability and make the solution to a problem more difficult and intractable,” the statement read.
Pakistan acknowledges and greatly appreciates Turkey’s invaluable role towards regional and international peace and stability. It is also a vital member and engine of the global economy, the Foreign Office continued.
The statement added, “The people and the Government of Pakistan reiterate their strong support for the Government and the people of Turkey in their quest for peace and prosperity, and as always, will continue to stand by them towards the achievement of these shared goals.”
Turkey is under a speculative attack as the recent developments in the lira cannot be explained by the country’s economic fundamentals, Isbank chief executive Adnan Bali said on Monday.
The lira has lost more than 40 percent of its value against the dollar so far this year over worries about the state of the economy and a bitter diplomatic spat with the United States.
It hit a fresh record low on Monday in early Asia Pacific trade and its tumble of 18 percent at some point on Friday has spread to global markets.
“This is a serious speculative attack,” Bali said. “I can not explain the point we have arrived with economic fundamentals,” he said, echoing Turkish President Tayyip Erdogan who said the country was the target of an economic war.
To shore up the lira, Turkey’s central bank on Monday pledged to provide liquidity and cut lira and foreign currency reserve requirements for Turkish banks. Investors have repeatedly said a rate hike from the central bank is needed to restore trust.
“You may not like it but whatever is needed for interest rates within the rules of economic discipline will be done. One would have to go under chemotherapy if needed, interest rates are similar,” Bali said.
Erdogan, who has called himself the “enemy of interest rates,” wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing. His comments on interest rates have heightened perceptions that the central bank is not independent.
The rise in the dollar squeezed profit margins and also increased risky assets, Bali said, but he added that there was no outflow of deposits over the past week, when the lira’s tumble accelerated.
The Turkish lira dropped again by almost eight percent Monday on fears that the economic crisis gripping Turkey could spill over into the global economy.
With investors already on edge over the China-US trade war, the lira´s collapse sparked a sell-off in Europe and New York at the end of last week, with safe haven assets including the Japanese yen and Swiss franc rallying.
The lira dived to a record low of 7.24 to the dollar at one point overnight, before recovering slightly after the country´s finance minister said Ankara was planning to roll out an “action plan” on Monday in response to the crisis.
That was followed by the central bank saying it was ready to take “all necessary measures” to ensure financial stability, easing reserve requirements for lenders and promising to provide them with liquidity.
– Reuters/Web Desk (Newsone)