The Turkish lira has updated a record low against the U.S. dollar after a delegation from Ankara left Washington without a solution to a diplomatic conflict over the arrest of an American pastor in Turkey.
The talks at the State Department were said to highlight American Pastor Andrew Brunson, who is under house arrest in Turkey during his trial on terrorism-related charges, as well as USA sanctions on Turkish ministers.
Talks this week in Washington failed to resolve the impasse which has led both sides to slap sanctions on senior officials amid fears of graver measures to come.More news: Djokovic happy to beat Polansky and the clock in Toronto
President Tayyip Erdogan of Turkey has told his citizens to sell their savings held in euros and dollars and buy lira in order to prop up the lira, citing an "economic war" after the country's currency has plummeted.
UBS chief economist for EMEA emerging markets Gyorgy Kovacs said a giant rate hike of 350-400 basis points would be "consistent with real rate levels that in the past helped to stabilise the currency".
Erdogan wants banks to lend cheap credit to fuel growth. Raising the rates has been heavily opposed by Erdogan.
Shares of European lenders also dropped, which according to the Reuters news agency was due to concerns about their Turkey exposure.More news: Fox News Channel Alum Abby Huntsman Joins 'The View' for Season 22
And even if eurozone exports to Turkey fell through the floor, previous experience has shown that European companies are "pretty quick in identifying and switching to new markets".
Meanwhile, Turkish Treasury and Finance Minister Berat Albayrak is expected to present a new economic development doctrine for the country on Friday.
"Don't heed them. Don't forget, if they have their dollars, we have our people, our God".
The plunge in the lira has featured remarkably little on Turkish television channels and newspapers - most of which after recent ownership changes are loyal to the government - with most media focusing instead on recent flooding by the Black Sea.More news: Milan reject interest in Serbian midfielder: We can't afford him