Turkish Stocks Plummet Most in World as Lira Weakens on Rates

Turkey stocks fell the most in the world as the lira plummeted and bonds dropped after the central bank left a key rate unchanged yesterday, spurring bets policy makers won’t act aggressively enough to support the currency.

The Borsa Istanbul National 100 index slumped 3.5 percent to 69,709.46 at the close in Istanbul, the lowest level since Oct. 2012 and tumbling the most in dollar terms among 94 indexes tracked by Bloomberg. The lira weakened 1.1 percent to 1.9705 a dollar at 6 p.m., the steepest loss among emerging-market currencies in Europe, the Middle East and Africa. Turkey’s two-year benchmark notes yields rose to a six-week high.

All but six shares fell after the central bank refrained from increasing the one-week repurchase rate from 4.5 percent at a meeting in Ankara yesterday. It raised the overnight lending rate by 50 basis points to 7.75 percent, spurring economists including Ahmet Akarli of Goldman Sachs Group Inc. to say the move was unlikely to shore up the markets.

“The market may want to force the central bank’s hand to raise the benchmark rate, with the lira among the worst-performing emerging-market currencies today,” Isik Okte, a strategist at state-run Turkiye Halk Bankasi AS’s investment unit in Istanbul, said in e-mailed comments. “Higher rates mean lower share prices for banks.”

Extra Tightening

The central bank said in a statement that extra tightening measures it started implementing today will remain in place until further notice, meaning it would continue to fund the market only at its highest rate. It also said it would sell a minimum of $100 million a day in foreign-exchange auctions. The move failed to arrest a decline in the lira, which depreciated the most since July 5.

The 16-member banks index tumbled 4 percent to the lowest in more than a year. State-run Turkiye Halk Bankasi AS dropped 5 percent to the lowest since June 2012. Turkiye Garanti Bankasi AS slumped 4.7 percent and Akbank TAS fell 2.8 percent.

The Ankara-based Banking Regulation and Supervision Agency announced on Aug. 6 draft rules to rein in loan growth, aimed at controlling the increase in consumer debt and encouraging savings. Under the rules, consumer overdraft accounts and credit card debt would be treated as consumer loans and therefore subject to general provisioning regulations.

Turkey’s two-year bond yield advanced 17 basis points, or 0.17 percentage point, to 9.53 percent, the highest level since July 11. The nation’s benchmark equity index has dropped 11 percent this year, compared with a decline of 12 percent for the MSCI Emerging Markets Index.

“Rising interest rates across the world create an unfriendly environment for stocks,” Tunc Obuter, the head of trading at Garanti Investment in Istanbul, said in e-mailed comments. An “unsatisfactory” central bank decision and new rules on credit have resulted in a “negative decoupling” for Turkish stocks, he said.

Before it's here, it's on the Bloomberg Terminal.