The latest crisis engulfing Turkey will make it harder for the country to roll over its external debts, with the banking sector particularly vulnerable, explained analysts at Capital Economics. They consider that if Turkey’s crisis worsens, it may cause wobbles in a few emerging market currencies, but there are reasons to think that any financial contagion will be limited. Key Quotes: “The fall in the lira will add to Turkey’s inflation problem and also risks worsening currency mismatches on balance sheets. What’s more, the rise in external borrowing costs will make it harder for Turkish borrowers to roll over their external debts (which are denominated mainly in foreign currencies).” “Were Turkey’s crisis to worsen, we may still see some form of financial contagion – indeed, the 1% or so falls in some high-beta EM currencies (notably the South African rand and Mexican peso) earlier today reflect this. And Turkey’s crisis in 2018 led to larger falls in EM currencies that were one reason behind a wave of EM interest rate hikes in that year.” “But there are reasons to think that the impact would be smaller this time around. First, EM currencies generally don’t look they need a significant adjustment. And second, after years of crisis and disappointment, foreign investors have pared back their exposure to Turkey. Non-residents’ holdings of Turkish equities and domestic government bonds are, in dollar terms, only half the size that they were on the eve of Turkey’s 2018 crisis. As a result, absolute losses for holders of Turkish assets would probably be lower, and forced selling of other EMs’ assets might be smaller too. Instead, the big risk in some of the major EMs are home grown in nature (e.g. India’s bank, debt problems in Brazil and South Africa).” FX Street FX Street FXStreet is the leading independent portal dedicated to the Foreign Exchange (Forex) market. It was launched in 2000 and the portal has always been proud of their unyielding commitment to provide objective and unbiased information, to enable their users to take better and more confident decisions. View All Post By FX Street FXStreet News share Read Next AUD/USD recovers to 0.7750 area as falling US T-bond yields weigh on USD FX Street 1 year The latest crisis engulfing Turkey will make it harder for the country to roll over its external debts, with the banking sector particularly vulnerable, explained analysts at Capital Economics. They consider that if Turkey's crisis worsens, it may cause wobbles in a few emerging market currencies, but there are reasons to think that any financial contagion will be limited. Key Quotes: "The fall in the lira will add to Turkey's inflation problem and also risks worsening currency mismatches on balance sheets. What's more, the rise in external borrowing costs will make it harder for Turkish borrowers to roll over… Regulated Forex Brokers All Brokers Sponsored Brokers Broker Benefits Min Deposit Score Visit Broker 1 $100T&Cs Apply 0% Commission and No stamp DutyRegulated by US,UK & International StockCopy Successfull Traders 9.8 Visit Site FreeBets Reviews$100Your capital is at risk. 2 T&Cs Apply 9.8 Visit Site FreeBets Reviews$100Your capital is at risk. 3 Recommended Broker $100T&Cs Apply No deposit or withdrawal feesTrade major forex pairs such as EUR/USD with leverage up to 30:1 and tight spreads of 0.9 pips Low $100 minimum deposit to open a trading account 9 Visit Site FreeBets ReviewsYour capital is at risk. 4 T&Cs Apply Visit Site FreeBets ReviewsYour capital is at risk. 5 Recommended Broker $0T&Cs Apply Trade gold, silver, and platinum directly against major currenciesUp to 1:500 leverage for forex trading24/5 customer service by phone and email 9 Visit Site FreeBets ReviewsYour capital is at risk.