Economy

World stocks hit one-month low as Turkish rout spreads

World stocks hit one-month low as Turkish rout spreads

The Australian sharemarket closed in the red and the dollar hit a fresh 18-month low as the Turkish lira led a rout in emerging market currencies and concerns mounted over European Bank exposure to Turkey.

Turkey's central bank announced new measures on Monday aimed at halting the rapid depreciation of the country's currency, the lira, which has been battered by worries over President Recep Tayyip Erdogan's stewardship of the economy and his escalating feud with the United States.

Stocks were lower Monday as a currency crisis in Turkey roiled global markets. Emerging market currencies and equities have also fallen in value since Friday, while investments seen as safe havens, such as the us dollar, Treasury bonds, gold and the Japanese yen have strengthened.

"South Africa's rand is the most overtraded currency in the world - the equivalent of about 17 percent of its GDP is traded a day - so it's the best proxy for EM risk and is whacked today because of Turkey", said Renaissance Capital global chief economist Charles Robertson.

The Turkish government is taking legal action against hundreds of social media accounts which they claim has "provoked" the ongoing plummet of the lira.

Turkey's President Tayyip Erdogan addresses Turkish Ambassadors during a meeting in Ankara, Turkey, Aug. 13, 2018. "It is clear that these attacks will continue for a while".

They would be in addition to the tariffs of 25 per cent on steel and 10 per cent on aluminum that the US imposed in March for imports from a variety of countries.

"We will not give in", Erdogan said in a speech Sunday.

They said that could be the first step towards tightening policy via an interest rate corridor, an instrument used in previous years, rather than increasing the benchmark rate.

The moves will free up 10 billion lira, $6 billion, and $3 billion equivalent of gold liquidity in the financial system, the bank said. It also pledged to provide "all the liquidity banks need".

Indonesia's central bank was also intervening in foreign exchange markets on Monday to defend the rupiah.

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Turkish lira to the United States dollar.

The lira's slide continued Monday, with the currency dropping as much as 10% against the USA dollar in early-morning trading before stabilizing.

Kuwaiti news agency KUNA said Albayrak held talks in the Gulf State with his Kuwaiti counterpart on Sunday evening about economic developments in Turkey, but said there was no discussion about supporting the Turkish currency.

But Fiona Cinoctta, senior market analyst at City Index, said the Turkish government only has a few days to stem the crisis before it started spilling out into other markets.

Erdoğan's reluctance to accept higher interest rates amid rampant inflation and mounting foreign debt has spurred fears among analysts that Turkey's once-vibrant economy could soon crash. Turkey's problems are particularly acute because it has more than $300bn of dollar-denominated corporate debt, which is getting more expensive to finance by the day.

Raphael Marechal, head portfolio manager, emerging markets, Nikko Asset Management Europe, said rate hikes might make things worse, given the stresses in the economy.

Neither BOC or Chinese central bank officials were available for comment on Monday.

Mr Albayrak said the country would "act in a speedy manner" and its plan included help for the banks and small and medium-sized businesses most affected by the dramatic volatility in the lira.

Investors have become increasingly anxious about Turkish President Recep Tayyip Erdoğan's stewardship of the country's economy.

Istanbul prosecutor's office said that Turkey was the target of an economic attack, and pledged to take legal action against all written and visual news as well as social media accounts which serve towards that goal, CNN Turk reported Monday.


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