Turkey halted trading in all of its listed stocks after sharp price falls triggered a market-wide disruption and the lira fell to a record low. The lira crisis in Turkey has thus reached a new dimension. After the lira rate fell further, investors also withdrew in droves. Even the bonds were not spared from the upheavals. Here interest rates soared to over 20 percent.
Trading in stocks, equity derivatives and repurchase agreements was automatically interrupted twice within an hour after the Borsa Istanbul 100 Index fell by up to seven percent. When trading resumed at 5:24 p.m. local time, the index fell again by up to 9.1 percent within the first two minutes.
The index had previously risen by up to 5.6 percent and then fell again, as central bank intervention in the currency market could no longer stop the lira from falling. The currency has been in an unprecedented decline for months, mainly because Turkish President Recep Tayyip Erdoğan insists on low interest rates. On Thursday, the lira came under renewed pressure because the central bank lowered its key interest rate by one percentage point to 14 percent. Inflation had already risen to more than 21 percent.
“The full surrender of Turkish equity markets today could mark a turning point in local sentiment,” Nick Stadtmiller, director of emerging markets at Medley Advisors, told Bloomberg. “Turkish stocks have risen sharply despite a deteriorating macroeconomic environment. The fact that the Turks are now withdrawing their money from the stock market could accelerate the trend towards local capital outflows from the country. ”
The dramatic moves come about as the Turks re-evaluate their hedges against rampant inflation and grapple with a currency that has lost nearly 40 percent of its value against the dollar over the past month. The drop in the price of the Turkish lira initially gave the country’s shares a high-rise. The leading index of the Istanbul Stock Exchange rose from one record high to the next. The ISE (Istanbul Stock Exchange) 100 is also dominated by export-oriented companies. They benefit from a devaluation of the Turkish lira because it makes their products more competitive abroad.
But that’s only one side: Although this week the most important stock index on the Istanbul Stock Exchange continued to rise in local currency and exceeded the 2400 mark for the first time in its history, it was calculated in US dollars this year has lost 37 percent of its value so far, making it the worst performing stock market in the world.
The Turkish lira is currently accelerating its decline. At noon it reached further historic lows against the dollar and the euro. In return, more than 17 lira had to be paid for one dollar for the first time, and more than 19 lira were due for one euro for the first time. The dollar and euro each gained more than seven percent against the lira.
The central bank’s easing cycle since September resulted in a 5 percentage point cut in the key interest rate, which sparked a run on the dollar among businesses and private investors.
President Recep Tayyip Erdogan has advocated lowering borrowing costs, arguing that lower interest rates will ultimately free the Turkish economy from reliance on short-term foreign inflows. The policy change and the ensuing market turmoil have sparked complaints from industrialists who say the current volatility is hurting businesses.