Turkey’s lira pulled back from a record low of 7.24 to the dollar on Monday after the central bank pledged to provide liquidity and cut reserve requirements for Turkish banks, but its meltdown continued to rattle global markets.

The currency has lost more than 40 percent against the dollar this year, largely over worries about President Tayyip Erdogan’s influence over the economy, his repeated calls for lower interest rates, and worsening ties with the United States.

On Friday that relentless slide turned into a crash: the lira dropped as much as 18 percent, hitting U.S. and European stocks as investors took fright over banks’ exposure to Turkey.

The fresh lira collapse on Sunday night hit Asian shares, weakened the South African rand and drove demand in global markets for safe currencies including the dollar, Swiss franc and yen. Shares in Europe’s major banks also lost ground.

The central bank, which surprised markets last month when it left interest rates unchanged despite double-digit inflation and the tumbling lira, announced the moves on liquidity and reserves after Finance Minister Berat Albayrak said authorities would start implementing an economic action plan on Monday.

The bank cut the lira reserve requirement ratio, a cash buffer held by banks, by 250 basis points for all maturity brackets and lowered reserve requirement ratios for non-core FX liabilities by 400 bps for maturities up to three years.

The moves will free up 10 billion lira, $6 billion, and $3 billion equivalent of gold liquidity in the financial system, the bank said. It also pledged to provide “all the liquidity banks need”.

While the measures should ease worries over financial stability, they will have no direct impact on the lira because they do not affect banks’ foreign exchange positions, BNP Paribas strategist Erkin Isik said in a note.

Isik said the lira’s current levels would add between 4 and 5 percentage points to headline inflation in coming months, pushing it up to around 21 percent in September from nearly 16 percent last month.

On Sunday night Turkey’s banking watchdog BBDK said it was limiting banks’ foreign exchange swap transactions.

RECORD LOW
The lira, which hit a record low of 7.24 against the dollar in Asian trading, pared losses after Albayrak’s comments and the central bank announcement, strengthening briefly to 6.4. It was trading at 6.89 per dollar at 0758 GMT.

Turkish bank shares and their dollar bonds tumbled, and Turkey’s sovereign dollar debt fell.

Albayrak said in an interview published late on Sunday that Turkey will start implementing an economic plan to ease investor concerns. “From Monday morning onwards our institutions will take the necessary steps and will share the announcements with the market,” he said, without giving details.

BlueBay Asset Management strategist Timothy Ash said the plan should have been ready before Asian markets opened.

“They are just always behind the curve, always catching up, always too late, and then the damage is done. Textbook stuff of how not to manage a crisis,” he wrote on Twitter.

Albayrak said budget discipline would be the most important foundation of Turkey’s new economic approach and fiscal rules would be implemented for targeted indicators if necessary.

The minister also said a plan has been prepared for banks and the “real” economy, including small to mid-sized businesses which are most affected by the foreign exchange fluctuations.”We will be taking the necessary steps with our banks and banking watchdog in a speedy manner,” he said.

Albayrak ruled out any seizure or conversion of dollar-denominated bank deposits into lira.

In the interview with Hurriyet newspaper, Albayrak described the lira’s weakness as “an attack” — echoing Erdogan, who is his father-in-law.

Erdogan, a self-styled “enemy of interest rates,” wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing.

On Sunday, speaking to supporters in Trabzon on the Black Sea coast, Erdogan dismissed suggestions that Turkey was in a financial crisis like those seen in Asia two decades ago.

The lira’s free-fall was the result of a plot and did not reflect economic fundamentals, he said. “What is the reason for all this storm in a tea cup? There is no economic reason... This is called carrying out an operation against Turkey,” he said.

His comments appeared to diminish the prospects of strong central bank action to halt the lira’s slide.

“Selling pressure has been triggered ... by concern that the central bank will not be able to take a step on interest rates even if it sees it as necessary,” said one treasury desk trader.

The interior ministry said on Monday it was taking legal action against 346 social media accounts that had posted comments about the weakening of the lira “in a provocative way”.