Another day, another collapse in the Turkish lira, only this time there was a twist: as the hyperinflating currency implodes, Erdogan has finally had enough of the relentless pummeling, and is starting to shut down Turkey's markets.
But first, let's back up: heading into Friday, the lira accelerated its historic descent, weakening past the 16 per-dollar mark for the first time ever, as the central bank's pledge to end a four-month cycle of interest rate cuts on Thursday failed to convince investors that inflation can be brought to heel. That was just the start however, and the currency plunge only accelerated crashing as low as 17.14 just hours later, bringing declines this week to 17%. YTD the currency has lost more than half of its value!
As a reminder, the central bank yesterday cut its benchmark one-week repo rate by a further 100 basis points to 14%, its fourth reduction since September spurred by demands from President Recep Tayyip Erdogan to lower borrowing costs in the face of surging consumer prices as part of his batshit insane monetary policy Erdoganomics whose only possible outcome is the collapse of Turkey's economy and hyperinflation. The resulting sell-off accelerated a 54% plunge in the currency so far this year as real rates fall further below zero with inflation now standing at an annual 21.3%.
Erdogan then responded to the economic pain caused by rising prices by ordering a 50% increase in the minimum wage next year, guaranteeing even more inflation as it will increase production costs that will see inflation accelerate by a further 2% to 8% next year, Erkin Isik, chief economist at QNB Finansbank, wrote in a note to clients.
In any case, once the lira plunged to 17, the central bank spent another billion or so intervening, its 5th intervention just in December. Needless to say, this intervention like all those preceding it, had a half-life of just a few minutes, and shortly after the USDTRY was trading back at just shy of all time highs.
And then, a stunning new development: as Bloomberg reports, all trades on Turkey’s benchmark stock index Borsa Istanbul 100 were halted after a sudden plunge in stocks - which until now were trading gingerly higher as one would expect in a time of runaway inflation - triggering a market-wide circuit breaker.
Trading of equities, equity derivatives and debt repo transactions were “halted temporarily” at 4:24 p.m. in Istanbul after the index reversed gains and fell as much as 5%, according to a public filing. Trading was scheduled to restart at 4:54 p.m, however we are confident it will only lead to more selling.
And this is what the realization that hyperinflation has arrived and may not be good for stocks looks like:
Of course, such attempts to halt a panic only make it worse, and sure enough, the furious selling only accelerate after the reopen, leading to another halt...
... and headlines such as these:
- HSBC MSCI TURKEY UCITS ETF SINKS TO RECORD LOW
- TURKISH STOCK INDEX CRASHES 9%, MOST SINCE MARCH
And this is where Turkey stocks closed on Friday ahead of what is sure to be a very long weekend: session lows.
The bottom line, as Delphine Arrighi from Guardcap Asset Management, said “Turkey has entered some uncharted territories here by responding to rampant inflation with rate cuts. As long as real rates remain negative, dollarization will continue to add pressure on the currency.”
For what it's worth, our view is clear and what is happening is very much charted: it is our view that Erdogan is purposefully hoping to spark economic collapse and hyperinflation...
Is Erdogan trying to singlehandedly destroy the Turkish economy to deflect attention from the billions he has pillaged— zerohedge (@zerohedge) December 16, 2021
... to deflect from the historic pillaging he and his cronies have done over the years. And the only way to do that is with a broad economic collapse that he can pin on "foreign intervention" and in the ensuing chaos, quietly sneak out of the country. A few coup or two should help.