Find out how Latin American currencies are affected by the Turkish lira's fall

Although the lira is recovering, the crisis that its fall aroused continues in global markets. Latin America is not immune from its effects

Last week, the Turkish lira fell to 18%, taking it to reach historical lows against the dollar. This fall was due to the fact that the president of the United States, Donald Trump, announced the doubling of tariffs on Turkey's aluminum and steel imports. These products would be taxed with rates of 20% and 50%, respectively.

Leer en español: Descubra cómo se ven afectadas las divisas latinoamericanas por la caída de la lira turca

Faced with this, Turkish President Tayyip Erdogan rejected an intervention by the International Monetary Fund (IMF) and said that in Turkey there is no economic crisis. But he asked the Turks to change dollars and euros to lire, stating that "it is naive to think that a problem with exchange rates can stop a country like Turkey." He also urged citizens to improve their hospitality towards tourists, "because they bring dollars."

In response to the fall of the lira, the central bank committed to deliver liquidity and reduce reserve requirements for local banks. This caused the currency to begin to recover on Monday 13 of this month. However, according to Forbes magazine, "the lira has lost more than 40% 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. "

In addition, according to Ray Attrill, head of currency strategy at National Australia Bank, "there's nothing as yet to suggest that the government, or Turkish central bank, is poised to announce fiscal or monetary policy measures capable quickly restoring confidence in Turkey."

An event with repercussions in Mexico

Although the lira is recovering, the crisis that its fall aroused continues in global markets, as its fall dragged different currencies of the world: the Argentine peso, (fall of 6.35%), the Russian ruble (6.35%), the South African rand (5.35%) the Brazilian real (4.11%) and the Mexican peso (1.63%). Regarding the Mexican peso, Forbes said that "it fell to its weakest level in more than a month on Monday due to a wave of aversion to risk assets derived from concerns about the crisis in Turkey, and against a rise in the dollar." The peso fell to 19.3760 units per dollar, its lowest level since July 5.

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According to Expansión in alliance with CNN Mario Correa, chief economist of Scotiabank, Turkey is an emerging market, so if there is an event such as the collapse of the lira, Mexican investors are nervous if they notice that the event may affect other markets emerging as is the Mexican. This is due to the interdependence that these types of markets have among them, which leads them to withdraw part of their capital.

Correa also affirmed that "Mexico is a very open economy, the flows that enter and leave the country have impacts on our financial markets, the exchange rate. In addition, the Mexican peso is a widely used currency to hedge positions in other emerging markets, so it is very sensitive to global risk perception."

Similarly, Fernando Lopez Macari, president of the Mexican Institute of Finance Executives, said that the economic outlook for both Mexico and globally is complicated by the situation in Turkey adding to U.S. protectionism. Macari explained that "beyond the financial crisis that Turkey is experiencing, we will have to see if other emerging markets begin to be affected more seriously. For now, various emerging market currencies have been under pressure, including the Mexican peso."


LatinAmerican Post | Sofía Carreño

Translated from "Descubra cómo se ven afectadas las divisas latinoamericanas por la caída de la lira turca"