Turkish stock trading halted twice as lira falls to new low

Central Bank intervention fails to calm investor sentiment

Trading on the Turkish stock market was halted twice in one hour on Friday, after rapid declines triggered circuit-breakers.

The slump came a day after the Central Bank of the Republic of Turkey (CBRT) voted to cut its key interest rate for the fourth consecutive month. The bank’s one-week repo rate now stands at 14%, having started September at 18%. 

GDP growth and runaway inflation

Although the Turkish economy grew by 21.7% and 7.4% year-on-year in the second and third quarters of 2021 respectively, concern about runaway inflation has played on investor sentiment. In November, inflation rose to a three-year high of 21.3% year-on-year. 

President Recep Tayyip Erdogan has consistently argued that inflation can be combated by lower interest rates, which he believes will boost Turkish exports and investment in the long-term. 

Despite the CBRT vowing that the latest cut would be the last such rate reduction for the foreseeable future, the lira sank to a record low against the dollar on Thursday. In response, Erdogan announced a 50% increase in the minimum wage. 

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Friday’s developments

The embattled currency extended these losses into Friday, falling to a new low of TRY 16.872 to the dollar. The lira has now lost almost 55% of its value against the dollar since the start of the year. 

The CBRT intervened by “selling translations due to unhealthy price formations in exchange rates”. However, the  fifth intervention since the start of December failed to calm market sentiment.

The Borsa Istanbul 100 Index closed Friday down by 8.5% at 2,084.47, its largest one-day loss since March.

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