Türkiye’s financial markets rebounded yesterday having been rattled this week by political manoeuvres against the country’s main opposition party and growing pressure on the lira.
The benchmark BIST 100 index rose 4.5 per cent in Istanbul, recovering from a 6pc plunge on Thursday that had triggered a suspension of trading after a top court moved to effectively oust main opposition leader Ozgur Ozel.
Bank stocks were up nearly 3pc after a near 9pc drop in the previous session that had been their biggest slump in over a year.
There was an equally swift rebound in the country’s bonds, too.
They had suffered their steepest selloff since March during Thursday’s turbulence, but had already made most of it back thanks to gains of up to 1.5 cents in international markets.
The Turkish lira, which has been on a managed slide and is down nearly 6pc this year, slipped to its latest record low of 45.74 per dollar.
JPMorgan’s strategists said they expect rates to be hiked to 40pc from the current 37pc, possibly even before the central bank’s next planned meeting on June 11.
“Rising political risks come at an unhelpful time for the lira,” they said, adding that there was also a risk that the country’s currency reserves could turn negative if investors sense another crisis could be brewing.
They estimate the lira “carry trade position” at $29 billion.
Foreign investors hold $15bn, or 6.4pc, of Türkiye’s lira-denominated government bonds, as well as a hefty $86bn of its largely dollar-denominated “external debt” and $46bn, or 35pc, of the country’s total equity stock.
“Should significant capital outflows occur, the CBRT’s net FX reserves are expected to reach negative levels this year,” JPMorgan’s analysts said.
The central bank published its latest financial stability report yesterday, saying pressures on Türkiye’s markets stemming from the Iran war were being managed with proactive monetary policy as well as liquidity and reserve management tools.
Foreign exchange reserves have fallen $50bn from their peak.
As of May 20, it is estimated to have ‘gross’ FX reserves, including gold, totalling $166bn.
‘Net’ FX reserves excluding gold, however, stand at a more modest $35 billion.
“If the CBRT continues to burn through its reserves at a rapid pace, it may have to seriously consider raising interest rates”, Matys said.
“In fact, an emergency rate hike cannot be excluded”.
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