Turkey says lira will strengthen, dollar has 'lost credibility'

ANKARA (Reuters) - Turkey’s finance minister promised to protect the lira on Tuesday, after it fell to a record low against the dollar this week, and said the U.S. currency had “lost credibility” because it had been exploited as a political tool.

Turkish Treasury and Finance Minister Berat Albayrak speaks during a presentation to announce his economic policy in Istanbul, Turkey August 10, 2018. REUTERS/Murad Sezer

Treasury and Finance Minister Berat Albayrak said he expected the lira to strengthen, and that Turkey would continue to take measures within free market rules to decrease foreign exchange risks to companies.

“We will protect the lira, we will march with the lira and the lira will strengthen greatly in the coming period,” he told members of President Tayyip Erdogan’s AK Party.

Albayrak, Erdogan’s son-in-law, was appointed last month following the president’s re-election with new executive powers.

Since Erdogan’s June 24 election victory the lira has lost a quarter of its value against the dollar. Investors have been concerned by his control over the economy, his resistance to raising interest rates to fight double-digit inflation, and an escalating crisis between Turkey and the United States.

Washington imposed sanctions on two Turkish ministers two weeks ago over the trial on terrorism charges of U.S. evangelical pastor Andrew Brunson in Turkey, and last week it raised tariffs on Turkish metal exports.

Albayrak said Turkey was the direct target of “the biggest actors in the global financial system”, and warned that those escalating the issue to a political level would “pay the price.”

“The dollar has lost its credibility,” he said. “In times when the dollar has been turned into a tool for political punishment, we will continue to strongly take steps to protect the lira in international trade.”

The lira gained some respite on Tuesday, recovering to trade at around 6.50 to the dollar at 1502 GMT, supported by steps by the central bank to ensure liquidity and measures by Turkey’s banking watchdog to relieve markets.

However economists say the measures fail to address the root cause of the currency’s weakness, and dollar-denominated bonds issued by selected Turkish banks continued to fall on Tuesday, although sovereign bonds steadied.

“This period has shown us areas in which we’re lacking. By discussion with our counterparts, we are walking with determined steps to establish a much stronger structure for banking,” Albayrak said.

Reporting by Ece Toksabay and Tuvan Gumrukcu; Editing by Dominic Evans