(Bloomberg) -- Turkey needs to work on a “new and fair” approach to managing the exchange rate that better suits the country’s economy and its people, according to a key ally of President Recep Tayyip Erdogan.

Speaking at an event in Istanbul on Saturday, nationalist leader Devlet Bahceli called for a new currency regime that safeguards Turkey’s economic relationships and channels its values, according to a recording published by his party’s official account on Twitter’s live-streaming video app Periscope. It “should be one of the most important agenda items” ahead, he said.

The recent fluctuations in the currency were intended “to harm the country’s political and economic fabric and the real sector,” Bahceli said. “This is clearly a sign of confrontation.”

Despite a crash in the lira last summer and months of market turmoil that followed, Turkey has stood by its free-floating currency and gave repeated assurances that capital controls aren’t an option. Still, authorities have started to take a more interventionist approach, seeking to stabilize the lira by reintroducing a tax on foreign-currency sellers and imposing a settlement delay for some purchases by individuals.

Responding to a downgrade of Turkey’s sovereign credit rating by Moody’s Investors Service, the Treasury and Finance Ministry said on Saturday that the country will “never abandon” a floating currency and its commitment to allow free movement of capital.

Still, comments by Bahceli suggest the consensus is more fragile. His Nationalist Movement Party, known by its Turkish initials of MHP, has been an ally of Erdogan’s AK Party in recent elections.

Erdogan, long a proponent of unorthodox economic beliefs, blamed bankers for creating excessive demand for hard currency and making misleading predictions on foreign exchange rates before March elections.

The lira is in retreat again after already depreciating about 10% this year against the dollar, the worst performer in emerging markets after the Argentine peso. Investors anticipate the Turkish currency will remain among the world’s most unstable, with its three-month implied volatility the highest globally.

Further declines in the lira spell trouble for an economy where consumer spending accounts for an estimated two-thirds of output, threatening to cripple demand and put a strain on Turkish companies saddled with a $315 billion foreign-currency debt pile.

The prospects for the lira could become even more dire if Turkey doesn’t move off a collision course with the U.S. over its purchase of a Russian missile system, which has strained the ties between the NATO allies and further spooked investors. The U.S. has threatened to impose sanctions on Turkey over the deal.

In a letter this month to his Turkish counterpart, acting Defense Secretary Patrick Shanahan also warned the U.S. will end Turkey’s participation in the F-35 jet program by July 31 over its decision to go forward with the purchase from Russia.

“The sanctions threats, the letter mess, the heavy burden of the exchange rate and interest rates have reached a highly dangerous level,” Bahceli said. “We are at a time where countries have started to communicate not by means of diplomacy but via power struggles.”

--With assistance from Taylan Bilgic.

To contact the reporters on this story: Tugce Ozsoy in Istanbul at tozsoy1@bloomberg.net;Cagan Koc in Istanbul at ckoc2@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Paul Abelsky, Amy Teibel

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