Turkish lira falls to record as rising Fed bets add to risks

Turkey’s lira weakened to an all-time low as deteriorating economic data added to concerns about the nation’s outlook amid rising expectations that the U.S. Federal Reserve will hike U.S. interest rates. The nation’s stocks and bonds also dropped.

The currency lost 0.8 percent to 3.1112 per dollar at 11:24 a.m. in Istanbul, extending its decline this year to 6.2 percent. The previous record was 3.0973, reached in the aftermath of the unsuccessful July 15 coup. The Borsa Istanbul 100 Index was headed for the longest losing streak in three months and the yield on the government’s 10-year bonds exceeded 10 percent for the first time since July.

Here are some of the highlights of Turkey’s markets:

  • The lira is the worst performer among emerging currencies this year after the Mexican and Argentine pesos
  • The Borsa Istanbul 100 Index was headed for the lowest level in almost two weeks
  • The yield on Turkey’s 10-year bonds has climbed the most this year among emerging-market peers

Data released on Wednesday showed the nation’s current-account deficit in August was wider than expected, adding to a list of economic and political risks that are weighing on investor sentiment. Growth in the nation’s gross domestic product has slowed, the government’s budget deficit is set to widen and the country extended a state of emergency it imposed after the failed putsch.

Fed Minutes

The central bank slashed borrowing costs this year, diminishing the appeal of lira assets as investors brace for higher U.S. interest rates that may spur outflows from emerging markets. U.S. central bankers debating the merits of raising borrowing costs last month described the decision as a close call, with several saying a rate hike was needed “relatively soon,” minutes of the September meeting showed.

The “data for August disappointed, and showed tendency for wider deficit going forward,” Commerzbank AG’s London-based economist Tatha Ghose, who sees the currency weakening to 3.2 per dollar this year, said in an e-mailed report. “A firmer oil price and collapsing tourism revenue are unambiguously negative for the current-account.”

Turkey’s benchmark index of stocks fell 1 percent, bringing its four-day decline to 1.7 percent. Akbank TAS was the biggest contributor to the decline, losing 2.1 percent, followed by Turkiye Garanti Bankasi AS’s 1.5 percent retreat. The yield on the government’s 10-year bonds rose for a fourth day to 10.01 percent.

Rising Oil

A rebound in crude oil prices is fueling bets that the current-account deficit in Turkey, a net energy importer, is unlikely to narrow further. That adds to pressure on the country’s finances since its tourism industry collapsed this year

The decline across Turkish markets comes amid growing concern among some investors over President Recep Tayyip Erdogan’s ambitions to consolidate power. The ruling AK Party will submit a new draft constitution to parliament soon, Prime Minister Binali Yildirim said in televised remarks on Wednesday. That could pave the way for a referendum on moving the country to a presidential system of governance from parliamentary rule.

International investors attribute “a higher risk premium to greater concentration of power in one hand,” Ghose said. “They will, at least initially, view this skeptically.”

Source: Bloomberg