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Investors are anxious not only about Turkey's souring relations with the USA, a longtime North Atlantic Treaty Organisation ally, but also Turkish President Recep Tayyip Erdogan's economic policies and the country's high debt accumulated in foreign currencies. "If they have iPhones, there is Samsung on the other side", Erdogan said at an assembly of his AK Party members in Ankara on August 14.

President Erdogan has accused the U.S. of trying to "bring Turkey to its knees through threats over a pastor".

"We will produce every product we are importing from overseas with foreign currency here and we will be the ones exporting these products", he said.

Turkish President Tayyip Erdogan attends a news conference in Ankara, Turkey, Aug. 14, 2018.

It was unclear whether Erdogan was referring to a trade war, or whether he was making a statement about military preparedness. "We are ready with everything we have", Erdogan said, according to Ahval.

"It is wrong to dare bring Turkey to its knees through threats over a pastor", Erdogan said. "You are exchanging your strategic partner in North Atlantic Treaty Organisation for a priest". "Is something like this acceptable?" he asked, seemingly in reference to US sanctions and increased tariffs.

Turkish lira banknotes are pictured at a currency exchange office in Istanbul, Turkey on August 13, 2018.




The escalating dispute between the two countries has exacerbated Turkey's economic crisis, pushing the lira to record lows. However, the currency remains volatile, with no signs of interest rate rises to combat high inflation and an overheating economy.

On Tuesday the lira recovered some ground, up around 5% on the day. "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 crisis came days after US President Donald Trump announced a doubling of steel and aluminium tariffs on Turkey, as Washington pushes Ankara to release Evangelical Christian pastor Andrew Brunson, who is being held on terrorism charges for almost two years. But world stock traders were dismayed the bank did not raise interest rates, which is what many economists believe is necessary to ease the crisis.

"What you want to see is tight monetary policy, a tight fiscal policy, and a recognition that there might be some short-term economic pain-but without it there's just no credibility of promises to restabilize things", said Craig Botham, Emerging Markets Economist at Schroders. Concerns about Turkey's financial crisis overshadowed Tuesday's slightly better-than-expected Euro-zone macro data - prelim German and EU Q2 GDP growth figures, showing that economic growth stood at 0.5% and 0.4% respectively.

Amid a Turkish-U.S. row, top Turkish firms are joining in a campaign to stop placing ads on U.S. -based online platforms.

The development on Wednesday comes amid escalating tensions between Turkey and the United States, its North Atlantic Treaty Organisation ally.


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