Turkey’s lira weakens 5 percent, court rejects US pastor’s appeal

ISTANBUL: Turkey’s battered lira weakened 5 percent on Friday after a Turkish court rejected a US Christian pastor’s appeal for release, a day after the US warned of further sanctions unless Ankara hands over the detained minister.

The currency has lost nearly 40 percent of its value against the dollar this year, hit by Ankara’s worsening rift with Washington and investor alarm about President Recep Tayyip Erdogan’s influence over monetary policy. Erdogan, a self-described “enemy of interest rates,” wants to lower borrowing costs despite high inflation.

The lira crisis has deepened concerns about the broader economy — particularly Turkey’s dependence on energy imports and whether foreign-currency debt levels pose a risk to the banking sector.

“There has been no sign that the central bank will be allowed to raise interest rates significantly and return rates to positive territory,” said William Jackson of Capital Economics in a note to clients. “Similarly, there has been no improvement in relations with the US and additional sanctions may be on the horizon.”

At 1256 GMT the currency stood at 6.1050 to the dollar, 5 percent weaker. Earlier in the session it fell as much as 7 percent.

A court in the western province of Izmir rejected an appeal to release the pastor, Andrew Brunson, from house arrest, saying evidence was still being collected and he posed a potential flight risk, according to a copy of the court ruling seen by Reuters.

Brunson, from North Carolina, is under house arrest as his trial on terrorism charges continues. He has denied the charges, and his case has been taken up by US President Donald Trump, who counts evangelical Christians among his core supporters.

Trump said in a tweet the US “will pay nothing” for Brunson’s release, “but we are cutting back on Turkey!” He called Brunson “a great patriot hostage.” Turkish officials say the case is a matter for the courts.

Turkish sovereign dollar bonds fell, while the cost of insuring exposure to Turkish debt rose.

The Turkish banking watchdog has taken steps to stabilize the currency, limiting futures transactions for offshore investors and lowering limits on swap transactions. But some economists have called for more decisive moves.

Turkey and its firms face repayments of nearly $3.8 billion on foreign currency bonds in October, Societe General has calculated.