Investors are bracing for another potential interest rate cut – or simply a hold on the current rate – as Turkey refuses to follow economic orthodoxy in battling its soaring inflation, now at more than 80%. Or indeed, the investors that can still stomach Turkey’s market volatility.
The Eurasian hub of 84 million people – which many major banks in Europe and the Middle East still have sizable exposure to, and which is highly exposed to geopolitical tensions – witnessed major market turbulence in recent days, on top of the dramatic currency drops of the last few years.
This week saw a major rout in Turkey’s stock market, the Borsa Istanbul, with Turkish banking stocks diving 35% over the week ending last Monday, after clocking a stratospheric 150% rally between mid-July and mid-September.
It prompted regulators and brokers to hold an emergency meeting, though ultimately they decided not to intervene in the market.
The cause of the volatility? First, Turkey’s high inflation had pushed investors to pour their money into stocks to protect the value of their assets. But it was fear of higher U.S. inflation, and consequent rate hikes from the Federal Reserve, that likely triggered the sudden downward turn, analysts believe.
The drop wiped out more than $12.1 billion in market value from the country’s publicly-listed banks.