Turkish markets and country-specific ETF popped Monday after Turkey’s central bank took steps to support price and financial stability in wake of the lira currency’s recent weakness against the U.S. dollar.
The iShares MSCI Turkey ETF (NYSEArca: TUR) gained 4.5% Monday and was testing its short-term, 50-day simple moving average.
The Turkish central bank said some 5.3 billion lira, or $1.37 billion, of lira liquidity will be yanked from the market, but some $1.4 billion of dollar liquidity will be provided to banks under a change in reserve requirements, reports Tuba Sahin for AA.
“In the recent period, the markets have witnessed unsound price formations that are inconsistent with economic fundamentals. Taking this development into account, with a view to supporting price stability and financial stability, the upper limit and the tranches for the FX maintenance facility within the reserve options mechanism have been revised,” according to the central bank.
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The U.S. dollar has been strengthening against the lira currency in recent weeks, with the dollar trading at TRY3.8406 Monday, compared to TRY3.41 back in September. The central bank’s moves may have been pushed through after the Turkish lira depreciated to a historic low of TRY3.90 against the USD on November 4 amid growing expectations that the Federal Reserve will hike interest rates next month and further tighten its monetary policy in 2018.
The moves by the central bank were “light measures to stop the bleeding” in the currency, Ozgur Altug, chief economist at BGC Partners, said in a note to clients, Reuters reports.
Many investors have an unfavorable view countries, especially emerging countries, with weakening domestic currencies. Something like TUR, which does not hedge its currency risk, also suffers when the domestic currency depreciates since U.S. dollar-denominated returns are lowered once converted back from weak lira-denominated Turkish company stocks.
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