Erhan Demirtas via Reuters Connect
$25bn spent on lira
Lending rate up to 46%
CMA bans short-selling
Efforts by Turkish regulators to stabilise the country’s money markets, which were thrown into turmoil by the arrest of the mayor of Istanbul last week, appear to be having some effect, with losses on the country’s stock market narrowing.
Markets were rocked and political unrest ensued after the arrest and detention of Ekrem İmamoğlu, a leading opposition figure and a rival to President Recep Tayyip Erdoğan, over alleged corruption and claims he has links to a terrorist group. İmamoğlu is now on pre-trial detention in jail.
The Istanbul exchange suffered its worst week since 2008, the main share index plunging 16 percent, with the market capitalisation of listed companies dropping by $66 billion.
Bank shares were the hardest hit, falling 26 percent over the week ending March 21.
The lira also suffered, down 12 percent at one point on March 19, the day İmamoğlu was detained, before recovering to close out the week around 4 percent lower.
Turkey’s central bank spent more than $25 billion to prop up the lira, according to estimates by the news agency Bloomberg.
In addition the bank lifted its overnight lending rate by 200 basis points to 46 percent on March 20 to help support the lira. Over the weekend it said it would use whatever measures were available to maintain stability.
Turkey’s financial sector regulator, the Capital Markets Authority (CMA), also took action, announcing on Sunday that it had suspended the short-selling of shares for at least one month, to counter speculation in the market.
The practice of short-selling, where an investor sells a stock or other tradable asset that they do not own at the time, in the hope of buying it at a lower price before the delivery time, only resumed in Turkey at the beginning of this year, after a ban in February 2023.
The CMA also announced it was rolling back restrictions on share buybacks, making it easier for listed firms to repurchase their own shares. This move is intended to help companies support their own share price and boost confidence.
The measures taken by the central bank and the CMA may have had the desired effect, at least in the short term. However Professor Emre Alkin, an economist and dean of Topkapı University, warned that they could ultimately do more harm than good.
If the volatility was a result of domestic or international economic pressures, it was only natural for the authorities to use the market tools available to them, Professor Alkin said.
“However, as the volatility stems from political issues, and since one does not know when these issues will come to an end, interventions carried out in an ambiguous climate can result in more harm,” he told AGBI.
The Istanbul stock exchange clawed back some of its losses on Monday and was up 2.6 percent at the midday break, though it dipped into negative territory in the afternoon as news broke of further investigations into another opposition-run municipality, this time in the capital, Ankara.
