A deepening crisis

Turkey's currency crisis deepened Monday, amid what President Recep Tayyip Erdoğan called an "economic war" against the nation, sending the lira to a fresh all-time low against the U.S. dollar and adding further pressure on central bank officials to raise interest rates to protect it.

Erodgan, however, has denounced such moves "the mother of all evil" and instead repeated his plea to Turks to exchange their gold, dollars and other foreign currencies into lira as an act of patriotism while the Interior Ministry said it would investigate 346 social media accounts for posts that allegedly provoked the lira's collapse. The central bank, meanwhile, has opted for various forms of liquidity support for its beleaguered banking sector -- including the freeing up of around $10 billion in cash on their collective balance sheets -- in order to stem the lira's decline and stablize the impact of surging inflation on the broader Mediterranean economy.

"The central bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary," it said in a statement Monday amid speculation that the country's base rate would rise from its current 17.75% in order to halt the lira's 50% year-to-date decline against the dollar.

Turkey's Currency Crisis: What Happened, What's Next, Why It MattersTurkey's central bank may need to step in, as U.S.-Turkish tensions escalate

The lira was marked 7.4% lower from its Friday close and changing hands at 6.85 against the U.S. dollar in early European trading, after hitting a fresh all-time low of 7.24 during the overnight session in Asia. Turkey's benchmark BIST 100 was marked 2.5% lower in the opening two hours of trading while its banking sector subindex plunged 11% before trading on its three biggest lenders -- Akbank (AKBTY)  , Isbank and Yapi Kredi -- was halted by exchange regulators. 

Europe's banking sector, as well, was trading deeply in the red Monday, with the Stoxx 600 Banks subindex falling 0.95% to a year-to-date low of 159.88, led by a 3.2% slump for Banco Bilbao Vizcaya Argentaria (BBVA) - Get Report , over concerns for its business exposure in Turkey. The euro, meanwhile, slumped to a fresh 52-week low of 1.1380 against the greenback.

Erodogan, however, remained defiant over the weekend, brushing away fears that fresh U.S. sanctions on its steel and aluminium exports -- a crucial driver of economic growth -- would harm the country's prospects. 

"The country is neither crumbling, nor being destroyed or bankrupt or in a crisis," he insisted during a televised speech Sunday. "Those who can't compete with us on the ground have brought online fictional currency plots that have nothing to with the realities of our country, production and real economy."

Erdogan also noted that the U.S. had set a Wednesday deadline for the release of evangelical pastor Andrew Brunson, who has been detained by authorities for nearly two years amid allegations that he was behind a failed 2016 coup, charges that both he and the White House have insisted are without foundation.

Foreign Minister Mevlut Cavusoglu, speaking to a group of ambassadors Monday, said Turkey had done enough to mend its fractured relationship with the United States, but also warned Washington of its status as a key NATO ally in a unique position in southern Europe and close to the unsettled Gulf region.