Turkey’s financial markets flounder as Erdogan’s policies baffle employers

Turkey stopped trading on all listed stocks after sudden drops triggered a circuit breaker, with the lira falling further and more questions being asked about Turkey’s financial policies. 

Trading in equities, equity derivatives and debt repo transactions automatically halted twice within an hour after the Borsa Istanbul 100 index fell by as much as 7 per cent. When trading resumed, the index fell by up to 9 per cent in the first two minutes.

Business leaders made rare public criticism of economic policies. The leader of the Istanbul Chamber of Industry said he was “astonished” Turkey’s central bank cut interest rates and then sell foreign reserves to support the lira the following day.

Rapid inflation led to direct central bank intervention in the market in its fifth effort during December to address what it labelled “unhealthy” prices.

Inflation is now exceeding 21 per cent and the currency has lost almost 40 per cent of its value against the US dollar over the previous month. The main Borsa Istanbul index of stocks in dollar terms is down 37 per cent this year, making it the world’s worst-performing equity market.

“Turmoil in markets and the level of exchange rates is worrying many companies and having a negative impact on them,” tweeted Rifat Hisarciklioglu, who heads Turkey’s Union of Chambers and Commodity Exchanges.

Hisarciklioglu asked for “urgent measures” to stabilise the markets.

President Recep Tayyip Erdogan has defied orthodox economic theory and demanded lower interest rates, saying lower rates will free Turkey from dependence on short-term foreign investment.

Erdogan, who has long claimed high-interest rates lead to inflation, has demanded low borrowing costs to stimulate the economy, growth, exports and jobs.

The weak lira is driving up prices, making imports, fuel and essentials more expensive. Many members of the 83 million population are struggling to buy food and meet other basic needs.

“The typical reaction to depreciation in emerging-market stock markets is a rally as investors use equities as a hedge and the leading shares often have a lot of hard currency revenues,” Richard Segal of Ambrosia Capital told Al-Jazeera. “However, today is different due to the volatility of the exchange rate, and the lira is approaching rates, which suggest bank capital ratios are running low. In addition, some business groups have begun to speak out more publicly.”

 

Instabul. Picture credit: Wikimedia