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triggered stop-losses this morning.” The decline against the yen was echoed in other currency pairs, with the Turkish currency also dropping as much as 9.9% against the dollar. The lira was the most actively traded emerging-market currency by Japanese retail investors in July, Some 1.39 trillion yen ($13.2bn) worth of lira-yen traded that month, according to the lastest data from the Financial Futures Association of Japan. At around 06:55 Istanbul time on August 26, the lira had lost 0.75% against the dollar to trade at 5.80.
Lira at 5.80. The Turkish lira (TRY) was trading around 5.80 at around 17:50 Istanbul time after hitting 6.40 for a few minutes on the Asia market opening last night. Turkish public lenders managed to take control of the local currency following the ‘flash crash’, while the Erdogan administration was working to convince Turks that there was nothing to make a fuss about. Turks fear a repeat of last summer’s lira crisis when the currency sank into the 7.20s.
7.2 Lira under control of “invisible hand”
Turkey’s central bank has introduced more measures that support the Turkish lira (TRY) by making it more costly to hold foreign currency. The national lender has increased its reserve requirement ratios on foreign currency deposits and participation funds for all maturity brackets by 100 basis points, or one percentage point, it said in a statement released on its website on August 5. Another step saw the remuneration rate on dollar-denominated required reserves, reserve options and free reserves held at the central bank decreased by 100 bp to 1 percent. The moves would withdraw about $2.1bn of foreign exchange from the market, the regulator said. Turkey has gone ahead with a series of unorthodox—and in some cases, in the eyes of critics, unacceptably manipulative—measures to lower demand for forex and to raise the attractiveness of the TRY since the outbreak of the currency crisis last summer. The lira reached a record low of 7.22 per dollar 12 months ago when the crisis peaked. By the end of business hours on August 6 it was trading just north of 5.50 per dollar.
The measures introduced by the central bank are in conflict with principles for free movement of capital, say some critics. They amount to a weaker substitute for tighter monetary policy, they add. But faced with record levels of dollarisation by residents in the past year, Turkey found itself fighting a daunting battle to deliver financial stability.
Argentina’s latest financial market shock last week failed to swamp Turkey and other emerging markets in the way previous plunges have done. That was in part due to the increasing isolation of Argentine credit and investments, a Reuters report noted on August 16. The jolt initially sparked some debt and equity selling in South Africa, Indonesia and Thailand and currency losses for Turkey, Mexico, Brazil and South Africa, but by the end of the week the contagion started to fade, it added. The Turkish lira (TRY) saw a 1.6% loss over the week, but other factors such as rising fears of global recession were at play. “The direct fallout from Argentina’s crisis on the rest of the emerging world should be limited, since Argentina’s economic footprint has diminished and it is a relatively closed economy,” said Stephanie de Torquat, macro strategist at Lombard Odier, was cited as saying. The MSCI Emerging Markets Index for stocks was down 1.4% for the week. That was less than the 2.2% dip in its global all-country equivalent. Argentina accounts for an aggregate weight of only0.26% within the index. Neighbouring Brazil’s weighting is 8.1%. Bond markets also rebounded, with the Bloomberg Barclays Emerging Markets USD Aggregate Index back in positive territory for the month, reversing a 1% slide in the wake of the Argentine primaries election outcome that shook markets, the Reuters report noted. “The main impact to emerging markets is not through direct economic or financial linkages but rather portfolio VaR [Value-at-Risk] shocks that could necessitate reducing risk, or hedging exposure, in other high beta, high yield fixed income exposures,” the report cited Jason Daw, Societe Generale’s head of emerging
45 TURKEY Country Report September 2019 www.intellinews.com