Turkey’s currency crisis sent world markets reeling, as investors in emerging markets sought safety in government bonds and the dollar.

It follows the lira’s record plunge of up to 18 percent on Aug. 10, which forced Turkey’s finance minister to announce an economic action plan in a bid to ease nerves.

The lira tumbled by as much as 12 percent on Aug. 13 but recovered to a loss of 7 percent, leading some economists to warn the decline could trigger the country’s next financial crisis.

“The plunge in the lira, which began in May, now looks certain to push the Turkish economy into recession,” Andrew Kenningham, chief global economist at Capital Economics, told Reuters.

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

Eurozone Affected

The euro also was affected by the lira’s drop, following a Financial Times report suggesting the European Central Bank has concerns about eurozone banks with exposure to Turkey.

The euro fell to a one-year low against the dollar on Aug. 13, and shares in Europe’s major banks also dropped.

Turkey’s Finance Minister Berat Albayrak said the central bank would start implementing an economic action plan, including cutting the lira reserve requirement ratio, a cash buffer held by banks.

Turkish Treasury and Finance Minister Berat Albayrak speaks
Turkish Treasury and Finance Minister Berat Albayrak speaks during a presentation to announce his economic policy in Istanbul, on Aug. 10, 2018. (Reuters/Murad Sezer/File Photo)

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.”

In an interview on Aug. 12, Albayrak said, “From Monday morning onwards, our institutions will take the necessary steps and will share the announcements with the market,” according to Reuters.

He also emphasized that there was a plan in place for small to medium businesses, which he called the “real” economy.

“We will be taking the necessary steps with our banks and banking watchdog in a speedy manner,” he said, while ruling out the possibility of seizing dollar-denominated bank deposits.

‘Always Behind the Curve’

Market analysts broadly welcomed his comments but said investors wanted to see action.

“It’s purely technical and Turkey needs a complete rebalancing of its economic business plan, and very sharp rate hikes and a strong commitment that the central bank will be independent,” Credit Agricole’s senior emerging markets strategist Guillaume Tresca told Reuters.

However, BlueBay Asset Management strategist Timothy Ash said the plans should have been ready earlier.

“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.

President Erdogan, meanwhile, dismissed the suggestion that Turkey was in a financial crisis, saying the lira’s drop was the result of a plot.

“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 told reporters on Aug. 12.

On Aug. 13, Erdogan said that spreading false news about the economy is treason and recent U.S. actions were a stab in the back against Ankara.

Reuters contributed to this report.

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