ISTANBUL (Reuters) - Turkey doubled tariffs on some U.S. imports including alcohol, cars and tobacco on Wednesday in retaliation for U.S. moves, but the lira rallied further after central bank’s liquidity moves had the effect of supporting the currency.
Turkish President Tayyip Erdogan attends a news conference in Ankara, Turkey, August 14, 2018. REUTERS/Umit Bektas
Ankara acted amid increased tension between the two NATO allies over Turkey’s detention of a Christian American pastor and other diplomatic issues, which have helped send the lira tumbling to record lows against the dollar.
The currency TRYTOM=D3 has lost more than 40 percent against the dollar this year, driven by worries over Erdogan's growing influence over the economy and his repeated calls for lower interest rates despite high inflation.
The rebound of around 6 percent on Wednesday, briefly strengthening to less than 6.0 against the dollar, came after the central bank squeezed lira liquidity in the market, effectively pushing up rates and supporting the currency.
Optimism about better relations with the European Union after a Turkish court released two Greek soldiers pending trial and a banking watchdog’s step to limit foreign exchange swap transactions have also helped the lira.
“They are squeezing lira liquidity out of the system now and pushing interest rates higher,” Cristian Maggio, head of emerging markets strategy at TD Securities.
“Rates have gone up by 10 percent ... The central bank has not done this through a change in the benchmark rates, but they are squeezing liquidity, so the result is the same,” Maggio said.
The lira firmed as far as 5.75 against the dollar on Wednesday and stood at 6.08 at 0943 GMT in a move initially triggered by the Turkish court decision on the Greek soldiers who faced espionage
