Turkish lira edges up from record low on central bank pledge, investor call

The Turkish lira pulled back on Tuesday from a record low hit a day earlier, helped by the central bank's liquidity measures and news of a planned conference call in which the finance minister will seek to reassure investors.

The lira, which closed at 6.9 per dollar on Monday, has weakened 45 percent this year, hit by worries over President Tayyip Erdogan's calls for lower interest rates and worsening ties with the United States.

The weakness of the Turkish currency has rippled through global markets. Its drop of as much as 18 percent on Friday hit U.S. and European stocks as investors fretted about banks' exposure to Turkey.

Dollar-denominated bonds issued by selected Turkish banks continued to fall on Tuesday, although sovereign bonds steadied. The lira stood at 6.54 against the dollar at 0749 GMT, up around five percent on the day.

Relations between NATO allies Turkey and the United States are at a low point, hurt by a series of issues from diverging interests in Syria, Ankara's plan to buy Russian defence systems and the detention of an American pastor, Andrew Brunson.

The White House on Monday said U.S. national security adviser John Bolton met Turkey's ambassador to the United States to discuss the detention of Brunson, on trial in Turkey over terrorism charges. Trump had asked for his immediate release.

Traders said news that Finance Minister Berat Albayrak will hold a conference call with up to 1,000 investors to discuss the economy might also have helped support the currency.

"I think the investor call Albayrak has scheduled has helped lira firm," said TEB Investment strategist Isik Okte. "I believe the new and important topics will be discussed in this call, otherwise there would not be such an attempt."

"The concerns are ongoing in the market but it is possible to mention a limited optimism for the first time in a while," a foreign exchange trader said.

Bankers said on Monday the central bank would meet banks' lira liquidity needs at the overnight rate of 19.25 percent -- 150 basis points above the benchmark weekly repo rate -- a move they said could be interpreted as a small, covert rate hike.

Analysts say the crisis has been a long time coming and reflects Turkey's refusal to raise interest rates to curb double-digit inflation and cool an overheated economy.

MEETING WITH BOLTON

Erdogan, rejecting economic fundamentals as the cause of lira weakness, said Turkey was the target of an economic war and has made repeated calls on Turks to sell their dollars and euros to shore up the national currency. He has also urged manufacturers not to rush to buy dollars.

Turkey's business lobbies called on Tuesday for a tighter monetary policy to stabilise the lira, and for diplomacy to solve U.S.-Turkish disputes.

Following Monday's meeting between Bolton and Turkish ambassador Serdar Kilic, U.S. officials have given no indication that the United States has been prepared to give ground in the standoff between the two countries' leaders.

Ankara has repeatedly said the Brunson issue was up to the courts and a Turkish judge moved Brunson from jail to house arrest in July. Infuriated by the move, which Washington said was insufficient, Trump sanctioned two Turkish ministers and doubled tariffs on metal imports, adding to lira's slide.

White House economic adviser Kevin Hassett said Treasury Secretary Steve Mnuchin was monitoring the financial situation in Turkey "very closely".

"This is no longer a dispute between the bureaucracies of the two countries. This is a fight between the two presidents now," said Soner Cagaptay, director of Turkish Research Program at the Washington Institute.

Cagaptay said Washington had an "arsenal of economic sanctions" ready to deply against Turkey, which he believed Trump would escalate until Brunson is released. "And such a move will further feed Erdogan's narrative that 'The West is attacking us'," he said.