Turkey’s main stock exchange halted trading on Friday after the country’s currency crisis, which was already eating away at bonds, spilled over to stocks.
Borsa Istanbul announced a so-called temporary breaker after its main Bist 100 index fell 5%. After trade resumed, the benchmark was more than 8% lower.
The sell-off came as the Turkish lira fell another 7% to a new all-time low of over 17 per US dollar, and a day after the central bank cut interest rates again despite a annual inflation rate of more than 20 percent.
The lira has halved so far this year following a series of rate cuts, President Recep Tayyip Erdogan – who rejects the economic orthodoxy that high interest rates curb inflation – is exercising increasingly tight control over the central bank.
“The central bank has totally lost control,” said Timothy Ash of BlueBay Asset Management.
The exchange also said it halted repo trading on Turkish bonds as prices prolonged their recent decline. The Turkish 10-year bond yield rose 0.3 percentage point on Friday to 21.5%.
Turkey’s stock market has so far been largely insulated from the chaos that engulfed the currency, with investors betting that a weaker pound is good for the country’s exporters. Even after Friday’s losses, the benchmark Bist 100 is still up more than 40 percent this year in local currency terms. In dollars, it has fallen 35%.
However, the pound’s rapid decline is likely to raise concerns about the financial health of companies that have borrowed in foreign currencies, or the possibility that Turkish depositors will start withdrawing their money from the banking system, according to Ash.
“The movements of reading her are so extreme. People are worried that we are reaching levels where debtors will have problems, ”he said.
The central bank continued to intervene in the markets in an attempt to support the pound by selling foreign currencies on Friday, with further signs that its monetary policy is disrupting Turkish businesses.
“We are amazed to see the central bank, which lowered interest rates yesterday, giving its precious foreign exchange resources to the market today,” said Erdal Bahcivan, head of the Istanbul Chamber of Industry, in an article on Twitter.
On Thursday, Erdogan announced a 50 percent increase in the minimum wage in a bid to protect workers from rapidly rising prices, a move economists say will fuel inflation further.