The Turkish lira has taken a dramatic nosedive against the US dollar since last week after a major diplomatic fall out with Donald Trump.
The currency fell almost 9 percent in early trading, despite defiant words by president Recep Tayyip Erdoğan pledging action to reverse the slide.
Analysts are growing increasingly concerned the crash could be replicated in major global banking centres.
Banks in Spain, Italy and France are most at risk of contagion, as well as emerging markets such as Argentina and South Africa which are exposed to Turkish debt, according to analysts.
The lira has fallen more than 40 percent this year amid tension over Mr Erdoğan’s control over the economy and deteriorating relations with the US.
Mr Erdoğan has accused foreign countries of waging war on Turkey and said his government would respond with trade measures to reduce reliance on the dollar and US markets.
Major Turkish bank Garanti has responded to the crisis by blocking customers from open new foreign exchange positions, making it harder for people to seel lira for US dollars, pounds and euros.
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The Turkish lira continues to nosedive despite the efforts of president Recep Tayyip Erdoğan (Image: GETTY)
09.56am update: Erdogan’s spokesman says necessary steps being taken
Turkey’s economy is strong and nobody should pay attention to speculative news and moves, presidential spokesman Ibrahim Kalin said today.
Making the comments on Twitter, Kalin also said the treasury ministry, the central bank, the banking watchdog, the capital markets board and other institutions were taking the steps necessary for financial stability.
09.50am update: Erdogan blames lira slide on “plot” against Turkey
President Erdogan has told supporters in Trabzon on the Black Sea coast there is no suggestion Turkey is in a financial crisis like those seen in Asia two decades ago.
He insisted the lira’s free-fall was the result of a plot and did not reflect the country’s 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.”
His comments appeared to diminish the prospects of strong central bank action to halt the lira’s slide.
9.32am update: Presidential spokesman dismisses economy “speculation”.
A Turkish presidential spokesman has insisted the country’s economy is strong and said nobody should pay attention to “speculation”.
The spokesman said the Treasury, Central Bank and Banking Watchdog were all taking the necessary steps to bring the matter to an end.
9.19am update: Global currencies hit by Turkish Lira crisis
The South African rand was down 3.1 percent after falling more than 10 percent in earlier trading, the Russian rouble dropped 0.8 percent and the Mexican peso 1.5 percent.
Analysts said the falls were due to investors in emerging market currencies selling heavily amid fears the lira’s sell-off could have a ripple effect in global financial markets
The Indian rupee slid into an all-time trough, while the Indonesian rupiah hit its lowest in almost three years, prompting intervention from the country’s central bank.
8.56am update: Ankara launches attack on US social media
The Turkish interior ministry has announced it is taking “necessary legal measures” against social media statements creating a negative perception of the country’s economy.
It said 346 social media accounts that posted comments about the weakening of the lira “in a provocative way” have been identified since August 7 and legal action has been launched.
8.49am update: Turkey has sparked a global sell off in emerging markets
Emerging market currencies sold off heavily this morning and Asian stocks were knocked lower as Turkey’s lira plunged to all-time lows on concerns over its diplomatic rift with the United States and the risk of capital flight.
Investors fear the lira’s sell-off could have a ripple effect in global financial markets with the euro, the South African rand and Mexico’s peso already dented by Turkey’s crisis.
The lira pared some of its losses after Turkey’s central bank said it had lowered reserve requirement ratios for banks. It also said it would provide whatever liquidity banks needed and take all necessary measures to maintain financial stability.
However, the lira was still down more than 9 percent on the day at 6.9743 per dollar and within spitting distance of a record low around 7.2400 hit it early Asian trade. This time last month the lira was at 4.8450.
The South African rand skidded to a level not seen since mid-2016 and Russia’s rouble slumped to a near 2-1/2 year trough.
The Indian rupee slid to an all-time trough, while the Indonesian rupiah hit its lowest in almost three years, prompting intervention from the country’s central bank.
The Turkish lira has collapsed to an all-time low (Image: GETTY)
8.42am, update: Turkey opens investigation into “economic attack”
Istanbul prosecutor’s office has launched an investigation into individuals suspected of involved in actions that threaten Turkey’s economic security.
A spokesman said Turkey had been targeted by an economic attack and the prosecutor’s office will take legal action against all written and visual news as well as social media accounts which it deemed to serve towards the purpose of this attack.
8.33am update: Albayrak pledges action
Turkish finance minister Berat Albayrak, who is also Recep Tayyip Erdoğan’s son-in-law, said he had an action plan ready to deal with the crisis.
He said: “From Monday morning onwards our institutions will take the necessary steps and will share the announcements with the market.”
Alarm bells are ringing in financial markets around the world are (Image: GETTY)
8.01am update: Analysts issue crisis warning
Chris Weston, of online trading firm IG Market in Melbourne, warned global markets would be on edge as investors tried to assess the impact of the crisis on European banks which have lent money to Turkey.
He said: “The European Union’s financial watchdog has expressed concern about EU financial exposures to Turkey. And so, if it is a concern for this institution, then it should be for traders too.
“Turkey’s massive pile of corporate debt denominated in foreign currencies, but a rapidly sliding currency – and inflation that’s threatening to go exponential – is a toxic combination.”
07.34 update: Turkey on verge of recession
Andrew Kenningham, chief global economist at Capital Economics, said: “The plunge in the lira which began in May now looks certain to push the Turkish economy into recession and it may well trigger a banking crisis.
“This would be another blow for emerging markets as an asset class, but the wider economic spillovers should be fairly modest, even for the euro zone.”