FED: 'Turkey most vulnerable market'

An index built by the US Federal Reserve (Fed) analysts, measuring economic vulnerability across 15 major emerging markets, found Turkey was the most vulnerable, followed by Brazil and then India.
Policies in Turkey — among two other emerging markets — made it especially vulnerable to external shocks and led to significant losses in its national currency, the lira, the Fed said in a report on Tuesday.

In a report to the US Congress on Tuesday, the Fed admitted it likely triggered a financial market sell-off in the developing world, adding, however, that some developing countries “need to look in the mirror when assessing why their markets took a big hit.”

In mid-2013, the Fed said it could soon start winding down a bond-buying stimulus program, sending stocks, bonds and currencies plunging across many emerging markets. The announcement stoked global tensions over potentially destabilizing shifts in international money flow, as when India’s central bank chief fretted that the United States should be more aware of how its policies affect the world.

The lira lost almost half its value since early 2008 against the US dollar. One US dollar was traded at around TL 1.2 in 2008 before the global crisis hit. The greenback stood at 2.19 against the lira on Wednesday. Turkey’s main benchmark index Borsa İstanbul (BIST) traded 0.7 percent higher at 64,714 points during Wednesday’s afternoon session. Market observers speculated that the central bank would gradually inject billions of US dollars in the weeks to follow to defend the ailing lira against the greenback. The bank has already burnt much of its foreign exchange arsenal.

Turkey’s central bank ramped up interest rates last month to halt a slide in the lira despite opposition from Prime Minister Recep Tayyip Erdoğan, a vocal opponent of higher borrowing costs who has railed against what he terms an “interest rate lobby” of speculators seeking to stifle growth and undermine the economy. The lira made only minor gains while concerns about the independence of the central bank prevailed.

The Fed analysis found that the most vulnerable countries tended to experience the biggest currency depreciations as well as larger increases in interest rates for government borrowing. “This evidence is consistent with the view that reducing the extent of economic vulnerabilities is important if (emerging market economies) are to become more resilient to shocks,” the Fed said.

Meanwhile, Ankara on Wednesday opened the books on a new long 30-year international bond issue, according to lead managers. The sovereign, rated Baa3/BB+/BBB-, has set initial price thoughts on the new issue, which will mature in February 2045, at 6.75-6.875 percent. Bank of America Merrill Lynch, BNP Paribas and Goldman Sachs are the lead managers on the new issue.

Source: Today’s Zaman