Analysts at Deutsche Bank point out that the Turkish Lira closed last night -3.0% at 6.469 which is now weaker than where it was on the Friday 3 weeks ago (6.4323) when the panic spread across the market.
Key Quotes
“The only softer closing level was on the following Monday (6.884) but that actually included a big intra-day rally back from the Asian wides. Yesterday was the third day in a row the Lira has weakened (post domestic holidays) while Turkey’s 5yr CDS was also +14.4bps wider and touched 500bps again (recent high was 535.0 on Aug 13).”
“In fairness there didn’t appear to be one obvious catalyst for yesterday’s move, although the weakest economic confidence reading since 2009 didn’t help, and likewise the CBT’s move to reinstate borrowing limits on overnight transactions failed to inspire confidence.”
“Instead of addressing its fundamental imbalances by executing orthodox policies like conventional rate hikes and/or going to the IMF, the CBT continues to tweak its other, unconventional policy tools. The move to tighten interbank liquidity comes only two weeks after the central bank took the exact opposite step.”
“However, the tough day for the Lira was overshadowed by the steep depreciation in the Argentine Peso, which dropped 7.55% versus the dollar to a new all-time low of 33.97. The currency traded at 18.6 at the end of last year – a 45.3% depreciation to now.”
“The immediate catalyst was President Macri’s request for the IMF to speed up disbursements under its current bailout program. Argentina had received $15bn in June and is due for another $3bn next month, but it is now unclear if that will be enough to stabilize the government’s finances amid persistent reserve drain.”
“Policy interest rates are at 40.0%, but, with inflation rising to 31.2% in July, real rates are not tight enough to encourage capital inflows. The economy is likely to contract this year, and the benchmark Merval stock index is down 27.6% since its January peak in local currency terms, and over 56% in USD terms.”
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