EMERGING MARKETS-Turkey’s lira at record low after rate hike disappoints, EM stocks subdued

June 23, 2023

Turkey central bank hikes rates to 15% from 8.5%

Turkish lira hits record low against the dollar

Polish retail sales down

Stocks down 0.2%, FX flat

(Updates at 1203 GMT)

By Amruta Khandekar and Siddarth S

June 22 (Reuters) – Turkey’s lira was at a record low against the dollar after the central bank’s keenly-awaited interest rate hike fell short of market expectations, while emerging market stocks were subdued after hawkish remarks from Federal Reserve Chair Jerome Powell.

The lira hit a fresh record low of 24.2 to the dollar, after Turkey’s central bank hiked its key interest rate by 650 basis points to 15% in a reversal of President Tayyip Erdogan’s low-rates policy.

The bank also said monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved.

Turkey’s sovereign dollar bonds tumbled more than 1 cent while credit default swaps rose after the decision. The country’s main stock index was up 1.5%.

“I am more worried about the medium term outlook which is likely to see further lira depreciation. The central bank has promised a gradual approach to tightening, but the high level of inflation and the need to rebuild lost credibility really warrants more robust action,” said Jon Harrison, managing director of emerging market macro strategy at TS Lombard.

MSCI’s index of emerging market stocks was down by 1203 GMT, following three days of sharp declines driven by disappointment over the lack of a stronger stimulus from China to shore up its weak post-pandemic economic growth.

Stock markets in China were closed for a holiday.

Broader emerging market currencies index was flat with the dollar index not far from a five-week low after Powell’s testimony.

Powell in his remarks to lawmakers in Washington on Wednesday said the outlook for two further 25 basis point (bps) rate increases are “a pretty good guess” of where the Fed is heading if the economy continues in its current direction.

The South African rand weakened 0.6% against the dollar, ahead of U.S. jobless claims data that could give hints at future Fed interest rate hikes.

Elsewhere, Hungary’s gross average wages rose by an annual 15.5% in April while Poland’s retail sales were down 6.8% on a year-on-year basis in May.

For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX

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For CENTRAL EUROPE market report, see

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For RUSSIAN market report, see (Reporting by Amruta Khandekar and Siddarth S in Bengaluru; Editing by Alexander Smith and Conor Humphries)

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