Turkish Lira Slumps to Record as Stocks Tumble on Rates, Fed

The Turkish lira weakened to a record and stocks fell for a fourth day on concern the central bank isn’t doing enough to help the currency and as Federal Reserve minutes showed broad support for stimulus cuts.

The lira depreciated 0.6 percent to 1.9918 per dollar at 5:52 p.m. in Istanbul, poised for the lowest close since at least 1981. The currency has slumped 10 percent in 2013, the second-biggest drop among major emerging currencies in Europe, the Middle East and Africa after the South African rand. The Borsa Istanbul National 100 index lost 2 percent to 68,300.05 at the close, bringing the slide for the week to 8 percent.

The central bank raised the overnight lending rate, which comprises the upper end of its rates corridor, by 50 basis points to 7.75 percent on Aug. 20, while keeping the benchmark one-week repo rate unchanged at 4.5 percent. The prospect of reduced U.S. stimulus and Asia’s faltering growth outlook fueled a selloff of developing-nation stocks, which have lost about $1 trillion this year. The MSCI Emerging Markets Index fell as much as 1.2 percent.

“The central bank’s timidity in rates is what prepared the scene for this,” Ipek Ozkardeskaya, a currency strategist at Swissquote Bank SA in Geneva, said in e-mailed comments. “It was a risk not to raise the benchmark rate when capital outflows from emerging markets were at such an accelerated pace.”

Yields on two-year benchmark bonds rose one basis point, or 0.01 percentage point, to 9.54 percent, the highest since July 11.

‘Hit Bottom’

The central bank has sold almost $8 billion for liras since June 11 in an effort to control currency depreciation, including $350 million today. The Ankara-based regulator declared today and tomorrow “exceptional” days, meaning it provides funds to the market at the overnight lending rate instead of the benchmark one-week repo rate.

“Nobody cares about fundamentals anymore,” Baris Buyukdemir, general manager at Ceros Securities in Istanbul, said by phone today. “Current levels are creating buying opportunities for long-term equity investors.”

The benchmark stock index may “hit bottom” at around 65,000, he said.

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