Turkey's central bank slows lira plunge with liquidity pledge
Turkey's currency crisis rumbled on into a second week as authorities did not announce any new measures until mid-morning on Monday.
The lira’s had resumed its plunge during early trading in Asia and as the European session began, with the currency hitting a new record low in morning trading. The dollar was as high as 7.24 overnight and in early trading was at 6.936, before easing to 6.862 by 1000 BST, having lost more than 45% of its value this year.
Emerging markets across asset classes were being knocked lower, with Turkey jitters hitting currencies in other parts of the world and in turn the price of various company shares and funds.
The Turkish central bank announced some measures to attempt to ease the pressure by promising to provide "all the liquidity the banks need" but no interest rate rise was forthcoming, amid strong words from the country's President Tayyip Erdogan over the weekend.
"Interest rates are an exploitation tool that makes the rich richer and the poor poorer," Erdogan said on Sunday, while also repeating his call that citizens convert their US dollars and euros into lira. "Nobody should try to make us fall into this trap, we won't be fooled by this plot, nobody should get excited."
On Monday the central bank said in a statement that it "will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary". Domestic banks will also be able to borrow foreign-exchange deposits from the central bank at a one-month maturity and one-week maturities.
Fund management group Ashmore, widely seen as the London-listed bellwether for emerging markets, saw its shares sold off on Monday morning, while South African-focused stocks Mediclinic and Old Mutual were both sent lower.
"After a tumultuous session on Friday, investors had been hoping to wake up to better news from Asia and a positive start to the week, but markets are continuing to fall," said Rebecca O’Keeffe, head of investment at Interactive Investor.
"Turkey remains front and centre of concerns, but contagion is rapidly undermining other emerging market currencies across Asia, Africa and Latin America, many of which are now under significant pressure. In Europe, the contagious effect of the turmoil is taking its toll on the banking sector in particular and commodities are also suffering."
She added that President Erdogan's failure to allow an independent central bank has put him in direct conflict with global financial markets. "You cannot run large fiscal and current account deficits if you have made your country uninvestable for foreign capital, and President Trump’s tariffs on Turkish steel and aluminium are merely helping to hasten the inevitable. While Erdogan remains intransigent, it is difficult to see international investors returning to Turkey any time soon."
"Clearly Turkey's situation is another global risk," said Konstantinos Anthis, head of research at ADS Securities.
"Even though the country itself has limited ties with the rest of the world, a spreading of the crisis to Europe via its banks' exposure is a major concern."
The bigger concern is that last week’s increased sanctions from the US, which sparked the latest run on the lira, could merely be the beginning of a further measures to exert economic pressure on Turkey, which in turn could create further ripple out effects, said Michael Hewson, chief market analyst at CMC Markets UK.