Turkish Lira Plunges Over 2% To New Record Low, Yields Rise On Moody's Warning

Tyler Durden's picture

The collapse in the Turkish Lira, which has been relentless since last summer's failed coup, has only accelerated in 2017, and especially this morning, when the Turkish currency tumbled more than 2% against the dollar - its single worst day since the July 19 military coup attempt - sliding as low as 3.73, down over 5% so far in 2017, and over 23% in the past 12 months.

While the broader catalyst are familiar, namely a slowing economy, seemignly daily terrorist attacks, a furious crackdown by Erdogan on government dissent and potential rating downgrades, this morning there have been two additional catalysts that have accelerated the selloff.

First Moody's, which has the country on junk rating as of last September, issued a warning on the country's banking system saying heightened security risks would weigh down on the economy and heap further pressure on domestic banks. The rating agency warned that Turkish banks’ bad loan ratio was set to rise to 4% this year from 3.24% “driven by the combination of high inflation, lira depreciation and the general worsening of the investment climate because of security issues and geopolitical tensions”. The caution comes as Turkey faces another downgrade to junk from Fitch later in January, which would see its last investment grade rating stripped away, promptly raising its costs of borrowing even more.

Only making matters worse, were comments from Turkey's deputy PM, Nurettin Canikli, who indicated that Turkey's head remains stuck deeply in the sand, when he blamed the plunge in the Lira on an unacceptable "campaign" to force interest rates higher.  He also told AHaber TV in an interview that institutions will take whatever measures are needed for economy, that Citizens have no demand for foreign currency (not quite if judging by the plunge in the lira), that the Turkish economy will continue to “resist” such moves as dollarization level very low compared to past, and ultimately blamed the U.S. for its support to Syrian Kurdish PYD/YPG calling it “unacceptable.”

Meanwhile, the market is already pricing in further downgrades, and as of this morning, Turkey's benchmark 10Y yields jumped another 15 bps near the highest over the past year.

So what is Turkey to do? One suggestion came from ING's chief EMEA FX and rates strategist Petr Krpata who writes that a "large one-off rate hike could unleash a 10% rally in the lira" adding that “in the absence of capital controls, a large emergency rate hike seems to be the only remedy. If the root cause is domestic, the solution must be domestic too.”

However, he admits that the bar for a large hike is high - especially with Erdogan having made it quite clear such a move is unacceptable - and expects the central bank to continue with its “piecemeal approach and only hike interest rates gradually.”

He concludes that such an approach is unlikely to halt the lira’s slide and suggests further downside; sees 3.90/USD being tested before the case for a large interest increase grows stronger.

At the current rate of collapse, the lira may be there by the end of the week.

 

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GreatUncle's picture

Coup, regime change failed and went.

Are we now observing an economic attack by the globalists?

nmewn's picture

Well he does have the goods on Obama, Hillary, Kerry and McCain...dates, times and what was transferred over what routes to where and to who.

Da chickenz...are a-comin-hooom...to rooostah! ;-)

xythras's picture
xythras (not verified) nmewn Jan 9, 2017 7:35 AM

Obama is capable of paying them to play nice just as he payed Iran.

More than 10 billions of US money.

http://dailywesterner.com/us-surrendered-to-iran-more-than-10-billion-in...

quadraspleen's picture

^^ What he said.

This is the other arm of the regime-change club. The shootings and crushing of the Lira will continue until the Grand Turk comes to heel

samjam7's picture

Well that was totally unexpected....NOT!

 

He feels he can snub our attempt to oust him? Then threaten the use of our military base in southern Turkey. Let's hurt him a bit where it hurts most, through rating downgrades and currency manipulation!

SpanishGoop's picture

"So what is Turkey to do?"

Press the "self-destruct" button.

Pretty please.

 

10mm's picture

Absolutely. 

dcohen's picture

Turkey is a disobedient puppet of the USA, and doesn't play ball like it used to with the US any longer (negotiating peace in Syria with Russia and Iran, while sidelining USA)?

Send In US credit rating agencies

Then attack their currency and financial infrastructure

rinse, repeat 

Shlomo Regards
((( Neocon / Neolib USA )))

navy62802's picture

OT - 300 pages of new FBI docs dropped at the FBI File Vault last night. Some juicy stuff on the Clinton investigation this time. Apparently Abedin had been under criminal investigation since 2013. Link below.

https://vault.fbi.gov/hillary-r.-clinton

TheytookERjobs's picture

Back the currency with gold. That will surely strengthen the Lira and show the globalist bastards who's the boss

heuvosYbacon's picture

Great article. It walks the reader through the facts of recent history at a leisurely pace and then snaps this at them:

"At the current rate of collapse, the lira may be there by the end of the week. "

Who wants to carve them some Turkey?
Vardaman's picture

Without oil and opium and a thin veneer of hippie-freako tourism, muzzism is nothing, economically speaking...

sessinpo's picture

We are having quite a few currencies in turmoil lately.The dominoes are falling one by one. Big problems coming up. The US dollar is the dollar of death and eventually these nations around the world will have to abandon it.

forrestdweller's picture

This is just a dictator digging his own grave. It's not deep enough yet.

 

heuvosYbacon's picture

Maybe the Israelis could swap israel for a stretch of land along the euphates, and then ISIS could be happy in Jeruslam and the jews could work wih the kurds to exploit some serious oil territory. Win win win for EVERYBODY!

I'll get my coat.

JohnGaltUk's picture

Default by the end of the year

Rich Monk's picture

Jew World Order at work. De-stabilize countries, create wars for profit. Repeat.

me or you's picture

USA is using economic terrorism against Turkey.  Time to kick NATO out and join SCO. 

angry_dad's picture
angry_dad (not verified) Jan 9, 2017 11:28 AM

The more the EU bankers devalue the turkish currency, the turks will ship more syrian immigrants back into western europe.

 

katagorikal's picture

Jim O'Neill coined the term BRIC, later extended to be BRICS,
and his next acronym was MINT, so let's see where the West's challengers are now:

Brazil: oil price crash, political crisis, stagnation, devaluation, inflation
Russia: oil price crash, sanctions, devaluation, inflation
India: mostly ok, but war on cash, temporary self-inflicted economic chaos
China: debt bubble, capital flight, slumping reserves, trying very hard to stop devaluation
South Africa: stagnation, devaluation, inflation

Mexico: oil price crash, Trump-inspired huge devaluation, inflation, riots
Indonesia: mostly ok, but steady devaluation
Nigeria: oil price crash, broken peg, huge devaluation, huge inflation
Turkey: islamization, autocracy, terrorism, coup, devaluation, inflation

The I's are probably doing best, but most have crashed and burned.

katagorikal's picture

Turkey needs a new (yeni) new (yeni) lira.

If at first you don't succeed, TRY, TRYY and TRYYY again.