Turkey’s lira fell further on Thursday after logging its worst session in four months in the wake of dovish comments by the central bank, while Hong Kong stocks tumbled 2.2% on China’s tightening oversight of gaming companies.
The lira fell as much as 0.3%, having dropped 1.5% in the previous session when Central Bank Governor Sahap Kavcioglu said the current 19% policy rate was tight enough to bring inflation down in the fourth quarter.
The bank is expected to begin cutting rates in coming months despite surging inflation – which stood at 19.25% in August on an annual basis – due in part to pressure from President Tayyip Erdogan for stimulus.
“This dilemma… goes to expose the heart of Turkey’s monetary policy inconsistency,” said Commerzbank analysts. “If (the central bank) proceeds to lower the rate, then the exchange rate is likely to face the full impact.”
The lira is the worst performing EM currency this year, down 12.5%.
South Africa’s rand inched up ahead of July manufacturing data which is seen falling sharply from last month, while rising oil prices saw Russia’s rouble rise 0.7%. The overall EM MSCI currency index was broadly flat.
MSCI’s EM equity index lost 1% to hit its lowest level since the end of August, with Hong Kong stocks marking their worst day in six weeks as tech shares tumbled.
Tencent and Netease lost 8% and 11% respectively after authorities summoned them and other gaming firms to ensure they were implementing new rules for the sector.
Shares of China Evergrande Group plunged 5% and its bonds fell by 1 cent after media reports that China’s no.2 property developer would suspend interest payments due on loans to two banks later this month, and also all payments to its wealth management products.
Sentiment more broadly was impacted by China’s factory gate inflation hitting a 13-year high in August, further pressuring manufacturers after dismal factory output last week.
In Latam, Brazilian assets were eyed as heightening political tensions and related protests whacked stocks and the currency overnight.
Mexico’s peso was up for the ninth session in 10 after the government on Wednesday proposed sharply reducing the tax burden for indebted state oil firm Pemex, and forecast economic growth of 4.1% for 2022 in its draft budget for the next year.
Ecuador meanwhile reached a new deal with the International Monetary Fund that could result in $1.5 billion in new disbursements.