Turkey Defends Lira as Iran War Puts Markets Under Pressure

Article content(Bloomberg) — Turkish assets came under pressure Monday as escalating tensions in Iran triggered a broader regional selloff and prompted the central bank to support the lira.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentThe Borsa Istanbul 100 Index opened down 5.3% before trimming losses to trade 4% lower by 11:07 a.m. The lira was little changed at 43.97 per dollar.Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Article content“There’s panic selling at first, then normalization,” said Mehmet Gerz, chief executive officer of Istanbul-based Osmanli Portfoy.Article contentLosses were broad-based, though some stocks bucked the trend. State-run defense contractor Aselsan Elektronik Sanayi, an index heavyweight, rose as much as 7.8%. Lira bond yields jumped amid concerns that the conflict could worsen energy dependent Turkey’s inflation outlook.Article contentArticle contentTrump Pushes for Iran Leadership Change as Tehran Stays DefiantArticle contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article contentMeanwhile, Turkish lenders came to the defense of the lira, selling about $5 billion as of Monday morning, according to traders who spoke on condition of anonymity. The central bank was also active in lira contracts in the Borsa Istanbul’s derivatives market, according to people familiar with the matter.Article contentThe central bank did not respond to a request for comment.Article contentOn Sunday evening, Turkish policymakers announced a series of measures across foreign exchange, equities and funds to shield investors from heightened volatility. The steps included a ban on short-selling through March 6 and a reduction in minimum equity capital requirements, allowing leveraged positions to be maintained with less capital.Article contentThe central bank, meanwhile, delivered a back-door interest-rate hike by suspending funding from one-week repo auctions, its main policy tool. It can now fund the system from the costlier window of 40% instead of 37%.Article contentIt also said it would conduct lira-settled foreign-exchange forward selling transactions, issued a liquidity bill to absorb excess lira and increased outright purchases of lira-denominated bonds.Article contentArticle content“I expect a relatively stable lira thanks to the central bank’s FX sales but a negative trend in bonds, due to the additional tightening measures and the deterioration in the inflation outlook,” which is also undermined by oil prices, Onur Ilgen, head of treasury at MUFG Bank Turkey, said.Article contentThat jump in oil prices — Brent is up 10% at $79 per barrel — could limit the space for another rate cut in March.Article contentThe central bank last estimated year-end inflation to be between 15% and 21% while projecting an average price of $60.9 per barrel this year.Article contentJPMorgan Chase & Co economist Fatih Akcelik said the bank is likely to skip a cut when it meets on March 12 over increased risk premiums and higher inflation prospects.Article content“Our estimates suggest that a $10 increase in Brent crude-oil price raises CPI inflation by 1.2 percentage points over the course of one year. As a result we revise up our end-2026 CPI forecast to 25% from 24%,” he said.Article contentFebruary inflation data will be published on Tuesday.Article content—With assistance from Tugce Ozsoy.Article content(Updates throughout with comments, market reaction and background.)Article contentTrending The (high) opportunity cost of paying off your mortgage early Mortgages Trump Urges Iran Leadership Change as Report Points to Talks PMN Business What's at stake for oil markets as Trump strikes Iran Oil & Gas Gulf Airlines Extend Flight Cancellations as Iran Targets Hubs PMN Business Feds to invest millions in startup accelerator to boost Canadian defence and dual-use companies Innovation Share this article in your social networkCommentsYou must be logged in to join the discussion or read more comments.Create an AccountSign in Join the Conversation Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. 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