Turkey's currency crisis

Photo: The Canadian Press

A man leaves a currency exchange shop in Ankara, Turkey, Friday.

Turkey's central bank took action Monday to free up cash for banks as the country grapples with a currency crisis sparked by concerns over President Recep Tayyip Erdogan's economic policies and a trade and diplomatic dispute with the United States.

The Turkish lira has nosedived over the past week and tumbled another 7 per cent on Monday as the central bank's measures failed to restore investor confidence.

The uncertainty pushed down world stock markets and briefly caused a sharp drop in the currencies of other emerging economies, like South Africa and India, amid concerns that the financial trouble could spread.

The lira hit a record low of 7.23 per dollar late Sunday after Erdogan remained defiant in his economic policies and the standoff against the United States, a NATO ally.

"Turkey is faced with an economic siege," Erdogan said Monday, in the latest of a series of speeches. "We are taking the necessary steps against these attacks and will continue to do so."

He has threatened to seek new alliances — a veiled hint at closer ties with Russia — and warned of drastic measures if businesses withdraw foreign currency from banks.

Erdogan also ruled out the possibility of higher interest rates, as they can slow economic growth. But independent analysts say higher rates are needed urgently to stabilize the currency and Erdogan's hard line is one of the reasons investors are worrying.

Erdogan won a second term in office in June under a new system of government that gives him sweeping powers. He has used his new power to put pressure on the central bank to not raise rates.

On Monday, the central bank announced a series of measures to "provide all the liquidity the banks need" — but offered no hint of a rate increase.

The moves are meant to grease the financial system, ease worries about trouble at banks and keep them providing loans to people and businesses.

The lira has now dropped some 45 per cent this year.