Spotlight: Turkish stocks plummet amid intensified troubles in swaps market

ANKARA, March 27 (Xinhua) -- Turkish stocks plummeted nearly six percent on Wednesday as troubles intensified in the swaps market to keep the Turkish currency strong, days ahead of key local elections that will test support for President Recep Tayyip Erdogan.

The main BIST 100 index of Turkish largest listed companies dropped by 5.67 percent to 91, 855 points at closure time. The banks index suffered particularly with a decline of 7.62 percent.

Turkish authorities have taken measures to shore up the lira since a sharp decline of more than four percent on Friday. But Ankara's unprecedented move has reportedly dried up liquidity in the swaps market, forcing annualized interest rates to surge up to 1.30 percent, a record level since Turkey's 2001 financial crisis.

The situation has sparked concern among investors who started selling other Turkish assets, causing the stock index to drop to its lowest point this year.

Interest rates on Turkey's benchmark 10-year lira bonds also climbed to 18.21 percent, a 0.7-percent rise since Tuesday.

"There is a rush toward selling Turkish assets among investors and this move has had an impact on the stock market as there is not enough Turkish currency," said Burak Yunuscular, a market research expert from Isik FX on Bloomberg HT television channel.

"Turkish bonds are now also at their highest levels since October," he said.

The Turkish currency against U.S. dollar fell nearly two percent to 5.43, partly reversing gains in the past two trading days.

People queued at exchange offices in downtown Ankara's commercial hub Kizilay to buy dollars in the afternoon, after the greenback slightly eased during the trading day.

Inflation in Turkey accelerated after the currency crisis last August on the back of a diplomatic spat with the United States, climbing to 25.2 percent in October.

It has since slowed down to 20 percent amid a recession of the Turkish economy after a decade of sustained growth under Erdogan.

Following the mini-meltdown of the lira on Friday, Erdogan vowed to crack down on "currency speculators" and a subsequent probe was launched against JPMorgan for its report regarding the Turkish currency ahead of the municipal elections to be held on Sunday across Turkey.

"Someone is trying to collect dollars from the market and we know who they are. They are going to pay a heavy price," said Erdogan during his election campaign.

Turkish Treasury and Finance Minister Berat Albayrak also made a statement on the currency drop, insisting that it was the result of a manipulation, and promising to go ahead with previous measures to drive the embattled economy to safer shores.

However, Turkey still needs to roll over 177 billion dollars of foreign currency debt due within the next 12 months amid a never-seen-before hoarding of dollars and euros of Turkish households.

The volatility in the Turkish markets is also partially caused by fears of renewed tensions between Ankara and Washington over Turkish persistence in acquiring Russian S-400 missiles despite strong American warnings.

In August 2018, Turkish lira hit a record low against the U.S. dollar when Washington imposed sanctions on Turkey by doubling steel and aluminum tariffs over the detention of an American pastor. After the release of the clergyman, their ties eased with a relative recovery of the lira.