Türkiye’s banking index extended losses to slide more than 8 per cent yesterday amid growing concerns that the central bank may delay or pause future interest rate cuts following Wednesday’s sharp lira tumble.
Turkish stocks dropped a further 1pc after plunging on Wednesday following the detention of President Tayyip Erdogan’s main political rival, while the lira was flat.
After opening 0.6pc higher, the benchmark BIST-100 stock index was down 1.01pc in volatile trade.
The banking index initially dropped 1.68pc in early trade before selling pressure intensified. It had fallen as much as 8.34pc.
The lira traded at 38.0000 against the US dollar. On Wednesday, the lira tumbled to a record low of 42 per dollar before recouping most of the day’s losses, after authorities detained the mayor of Istanbul, Ekrem Imamoglu.
Bankers calculated that the Turkish central bank sold a minimum of $5 billion in FX after the lira’s crash, while some said it may have reached at least $10 billion.
Serhat Baskurt, head of algorithmic trading at ALB Yatirim, attributed the decline in banking stocks to fading rate-cut expectations following the central bank’s FX sale.
“The central bank sold around $8-9bn after strong FX demand yesterday. There is still uncertainty about whether this demand will persist. If FX demand continues and carry trade outflows accelerate, the expectation for an April rate cut could shift towards a hold. In fact, I believe an implicit rate hike might even be on the table,” Baskurt said.
He noted that selling pressure was concentrated in banks with significant foreign investor positions.
Yusuf Dogan, treasury director at Trive Menkul Degerler, said any delay or pause in the expected monetary easing cycle in 2025 could disrupt the projected 200-400 basis point recovery in banks’ net interest margins.
He added that such a scenario could also put at risk the rebound in return on equity, which has been a key driver behind the banking sector’s more than 20pc rally since the monetary easing cycle began in December.
International bonds issued by Türkiye’s government clawed back some of the previous session’s losses. Longer-dated maturities were up as much as 0.7 cents with the 2045 bond bid at 86.026 cents on the dollar, retracing more than half of Wednesday’s decline, Tradeweb data showed.
&uuid=(email))