More Trouble In Turkey As Lira Plunges To New Lows, Bond Yields Soar
On Monday, Turkey’s lira plunged to new lows against the dollar as coalition talks between prime minister and AK Party leader Ahmet Davutoglu and nationalist MHP leader Devlet Bahceli broke down. The result, AKP won’t be able to form a coalition government after elections in June saw the party lose its parliamentary majority for the first time in 12 years.
In the absence of a coalition, the country will go back to the polls – likely in November – where President Recep Tayyip Erdogan hopes heightened violence between Ankara and the PKK will translate into a stronger showing for AKP.
The political turmoil, rising violence, and general EM malaise have hit the country’s currency hard and on Tuesday, Turkey’s central bank left rates unchanged prompting further weakness in the lira which had already fallen earlier in the session after Emine Nur Gunay, Davutoglu’s chief adviser, hinted that a rate hike was not in the cards.
Meanwhile, 10-year yields have spiked to their highest levels in nearly a year and a half.
As Bloomberg reports, the market is also not impressed with the central bank’s plan to stabilize markets in the face of policy normalization in the US:
Investors sold Turkish assets, sending TRY to record low after central bank published “road map” of measures it said would prepare country for normalization of global monetary policy.List of 9 technical adjustments fell short of investor expectations that Turkey’s central bank would move toward simplifying monetary policy framework
TRY fell as much as 0.9% to record 2.8941/USD; 2Y yields surged to the highest in more than a year at 10.59%
“The strategic plan is disappointing,” Guillaume Tresca, a senior emerging market strategist at Credit Agricole wrote in e-mail
Central bank is “just trying to justify saying to the markets that it’s ready to face a Fed rate hike, without really announcing anything new”
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