Turkey suspends stock trading as currency pressure spreads across markets

Turkey’s main stock exchange halted trading on Friday after the country’s currency crisis, which had already hurt bonds, spread to equities.

Borsa Istanbul announced a temporary so-called circuit breaker after the main Bist 100 index fell by 5 percent. After trading resumed, the benchmark was more than 8 percent lower.

The sale came as the Turkish lira fell another 7 percent to a new all-time low of more than 17 for the US dollar, and a day after the central bank cut interest rates again despite an annual inflation rate of more than 20 percent.

The lira has halved in value so far this year following a series of rate cuts as President Recep Tayyip Erdogan — who rejects the economic orthodoxy that high interest rates keep inflation in check — exerts increasing control over the central bank.

“The central bank has completely lost control,” said Timothy Ash of BlueBay Asset Management.

The exchange also said it had halted repurchase transactions in Turkish bonds as prices extended their recent decline. The yield on the 10-year Turkish government bond rose by 0.3 percentage point to 21.5 percent on Friday.

Turkey’s stock market has so far been largely shielded from the chaos engulfing the currency, with investors betting that a weaker lira is good for the country’s exporters. Even after Friday’s losses, the Bist 100 benchmark is still up more than 40 percent in local currencies this year. In dollar terms, it is down 35 percent.

However, the rapid decline in the lira is likely to raise concerns about the financial health of firms that have borrowed in foreign currencies, or the possibility of Turkish depositors taking their money out of the banking system, Ash said.

“The movements in the lira are so extreme. People are concerned that we are reaching a level where debtors will be in trouble,” he said.

The central bank continued to intervene in markets in a bid to support the lira by selling foreign exchange Friday, with further signs that its monetary policy is upsetting Turkish businesses.

“We are amazed to see how the central bank, which cut interest rates yesterday, is giving its precious currency assets to the market today,” Erdal Bahcivan, head of the Istanbul Chamber of Industry, said in a tweet.

On Thursday, Erdogan announced a 50 percent increase in the minimum wage to protect workers from soaring prices, a move economists warned would fuel inflation.