Compounding the lira's agony, President Donald Trump said he had doubled steel and aluminium tariffs on Turkey, noting that relations between the North Atlantic Treaty Organisation allies were "not very good".
Speaking after U.S. President Donald Trump doubled tariffs on Turkish steel and aluminum imports, Erdogan described Friday's 18 percent fall in the lira to a record low as the "missiles" of an economic war waged against Turkey.
Paul Greer at Fidelity International said dramatic interventions were now needed as Turkey faced a "downward spiral" of investor confidence.
Meanwhile, concerns were intensified on August 10 by a report in the Financial Times that the supervisory wing of the European Central Bank (ECB) had over the last weeks began to look more closely at eurozone lenders' exposure to Turkey.
Turkey's currency fell Friday after its economy was rattled by the United States' move to slap the country with more tariffs. Washington slapped tariffs of 25 percent on steel and 10 percent on aluminum in March for imports from several countries, including Turkey.
On Friday, Erdogan asked Turkish citizens to sell off their gold and dollars and exchange them for the lira, in an attempt to prop up the currency.
Last week, the United States imposed sanctions on Turkey's justice minister and interior minister for not releasing pastor Andrew Brunson. The White House said he had authorised them under a section of U.S. trade law that allows for tariffs on national security grounds.
The plunge in the value of the currency coupled with an inflation rate of almost 16% could cause a lot of damage to Turkey's economy.
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" but warned a deal to normalise ties with the United States may also be needed. If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks.
Hoping to put pressure on the North Atlantic Treaty Organisation ally to free the pastor, the White House sanctioned two top Turkish government officials. It has lost 40 percent of its value so far in 2018, and reached record lows following Trump's tweet.
On Friday, they also had to also factor in Turkey's economic crisis.
Waves from the crisis spread overseas, with investors selling off shares in European banks with large exposure to the Turkish economy.
Erdogan has frequently blamed an "interest rate lobby" and Western credit ratings agencies for trying to bring down Turkey's economy. "This is a domestic and national struggle".
The two North Atlantic Treaty Organisation members are at odds on a number of issues - how to fight the Islamic State group, Ankara's plans to buy Russian missile defence systems, and how to punish the alleged plotters of a failed coup in Turkey in 2016.
One of the hard issues affecting U.S. He claims higher rates lead to higher inflation - the opposite of what standard economic theory says. On Friday, The New York Times published an article by Erdogan himself. But since adopting increased powers, Erdogan appears to have greater control over the bank as well.