Turkish rate-cut rout knocks rand

The rand and other emerging-market currencies fell with Turkey’s lira, which plunged to a record low, after that country’s central bank cut its benchmark interest rate sharply. The rand fell 1.3% in its biggest one-day fall in three weeks.

The rand and other emerging-market currencies fell with Turkey’s lira, which plunged to a record low, after that country’s central bank cut its benchmark interest rate sharply.

Turkey’s policy rate was cut 200 basis points to 16%, despite rising inflation and a fast-weakening currency. Economists see this as confirmation of central bank loss of independence. Those surveyed by Reuters had expected a cut of 50-100 basis points.

The central bank has been under pressure from President Recep Tayyip Erdogan, who has replaced its leader several times in the past year and has been pushing it to cut interests rates to boost lending and promote investment and economic growth.

That policy helped Turkey’s economy grow throughout the coronavirus pandemic and perform far better than its emerging-market peers, but drawbacks have been dire. The lira lost a fifth of its value against the dollar since the start of 2020 and the annual inflation rate reached nearly 20%, almost four times the government target.

“The lira tumbled to fresh lows after the CBRT once again caved to Erdogan’s pressure and delivered a largerthan-expected rate cut,” said Oanda senior market analyst Edward Moya. The decision “to disregard inflationary pressures and common sense central banking has the lira in free fall.”

The rand fell more than 1% to the dollar on the news its biggest oneday fall in three weeks while the Turkish Lira weakened 2.7%, the most since Erdogan fired the central bank chief on March 22, when it fell 7.94%.

At 6pm, the rand had weakened 1.3% to 14.5797/$, 1.2% to R16.9708/€ and 1.2% to R20.1346/£. The euro was little changed at $1.1643. “Emerging market currency weakness remained pronounced,” said IG senior market analyst Shaun Murison. “To make matters worse for the Turkish lira, there is also the suggestion that Turkey will be grey-listed by the Financial Action Task Force [a transnational regulator], which could negatively affect capital flows within the region,” said Murison.

The JSE fell the most in a month, tracking mostly weaker global markets as a possible default by Chinese property giant Evergrande weighed on sentiment.

The JSE all share dropped 1.25% to 66,057.58 points, with resources down 2.8%, industrial metals 2.75% and precious metals 2.51%. The top 40 shed 1.35%.

Gold was flat at $1,782.30/oz. Platinum slid 0.5% to $1,049.25. Brent crude fell 2.42% to $83.78 a barrel.