Turkish markets shaken with record fluctuations

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Turkish markets have become one of the emerging markets that have been most quaked after the Fed’s notice this week to end monetary stimulus soon. The lira fell to a record level against the dollar on Aug. 23

 Turkey’s currency declined to 2 against the dollar on Aug. 23 which is a record low level.

Many emerging markets have started to freefall this week following the release of Federal Reserve minutes indicating that its stimulus could soon be withdrawn, and the Turkish markets have become one of the worst performers of all as Turkey’s currency declined to 2 against the dollar on Aug. 23, a record low level.

The Turkish Lira appeared to be steady for the first time in three days on the morning of Aug. 23 after central bank forex auctions helped steady the currency and as interventions in other emerging markets cushioned investor sentiment towards riskier assets. Turkey’s currency has however declined again to 2 against the dollar towards evening and then eased to 1,9922.

The lira, buoyed by the announcement of the second $350-million central bank forex auction in as many days, traded at 1.9850 to the dollar by 07:50 a.m. GMT, firmer than the record low of 1.9933 it hit overnight, the biggest drop among many emerging markets.

Turkey’s 10-year yield climbed above 10 percent on Aug. 22 for the first time since January 2012.

The main Turkish stock market index fell 2.02 percent Aug. 22 after falling 3.46 percent on Aug. 21. The index rose 0.61 percent to 68.718,94 on Aug. 23 morning and fell 0.54 percent to 67.932,32 at the closure.

The main Istanbul share index rose 0.2 percent to 68,433.89 on Aug. 23 morning, underperforming in comparison to the broader emerging markets index, which rose 0.56 percent.

“Markets are enjoying a bit of a bounce after a sharp sell-off,” said Stuart Hackett, director of sales trading at Ekspres Invest in Istanbul. “Turkish markets have been hit much harder than other emerging markets due to […] the effects of the Fed’s tapering, because it’s a high beta market and concerns about geopolitics.”

Central bank’s dilemma

The Turkish central bank said it would apply more monetary tightening by not holding one-week repo auctions, halting funding from its policy rate and opening forex-selling auctions of at least $350 million.
The currencies of India, Indonesia, Malaysia and Thailand have all hit multi-year lows. Brazil’s real skimmed a five-year low against the dollar.

The central bank in Brazil announced a currency-intervention program to provide $60 billion worth of cash and insurance to the foreign-exchange market by year-end to bolster the real, further tempering the emerging markets rout.

The move “gets the central bank of Turkey out of a tricky situation,” wrote economist Timothy Ash of Standard Bank.

Turkey’s central bank raised its overnight lending rate, the upper end of the interest rate corridor it uses to control monetary conditions, for a second straight month on Aug. 20, hiking it by 50 basis points to 7.75 percent in a surprise move to try to prevent an uncontrolled slide in the lira.

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