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Turkey, the stock market has collapsed! | Blog post

December 18, 2021

On the 17th, at 4:24 p.m. local time in Turkey, the Turkish stock exchange collapsed to trigger the fuse mechanism of the Istanbul Stock Exchange. Trading in the stock market, the futures derivatives market on equities and stock indices and the bond buyback market are temporarily suspended.

Trade resumed almost an hour later. Subsequently, the Istanbul Stock Exchange in Turkey hit a second circuit breaker and the decline widened to 7%.

At the close, major Turkish stock indexes closed 8.5% lower, the steepest overnight drop since March of this year.

In fact, the national 100 index of the Istanbul Stock Exchange of Turkey rose over 5.6% in the morning local time, continuing the upward trend of over 5% on Thursday and continuing to hit a closing record. However, the country’s central bank intervened in the currency market and failed to stop the pound from falling. The Turkish stock market retreated quickly and fell 7% to two dips.

On 17th local time, the exchange rate of the Turkish lira against the US dollar fell below the two-round mark of 16 and 17, hitting a new low. The Central Bank of Turkey intervened in the foreign exchange market again on the same day, intervening in the foreign exchange market for the fifth time this month. After the intervention of the Central Bank of Turkey, the exchange rate of the Turkish lira against the US dollar fell below 17.

The US dollar has appreciated strongly against the Turkish lira.

Since the start of this year, the Turkish lira has depreciated by around 55% against the US dollar.

On 16th local time, the Central Bank of Turkey held a meeting of the Monetary Policy Committee and announced that it would lower the benchmark interest rate by 100 basis points to 14%.

Prior to that, the Central Bank of Turkey intervened in the foreign exchange market four times on the 1st, 3rd, 10th and 13th of this month.

On 16th local time, Turkish President Erdogan announced a substantial increase in the monthly minimum wage in Turkey in 2022 to 4,253 lire. Calculated according to the Turkish Lira, Turkey’s monthly minimum wage in 2022 has been increased by approximately 50% from the monthly minimum wage in 2021.

Turkish Minister of Labor and Social Security Bilgin said the monthly minimum wage in Turkey is linked to the livelihoods of 6.9 million Turkish employees.

In 2021, the monthly minimum wage in Turkey is 2,826 lire. Based on the exchange rate at the start of 2021, this works out to around US $ 380. But now, with the depreciation of the lira, 2,826 lira is only equivalent to about 185 US dollars.

In addition, Turkey’s inflation rate remains high. Turkey’s consumer price index (CPI) in November rose 21.3% compared to the same period last year.

Since September of this year, the Central Bank of Turkey has reduced its key rate by 500 basis points. Almost every time the Turkish Central Bank cuts interest rates this year, there has been a further depreciation of the lira.

This month, the Central Bank of Turkey intervened four times in the forex market to sell US dollars, hoping to slow the depreciation of the lira.

Turkish President Erdogan.

Turkish President Erdogan has publicly stated on several occasions that he will continue to implement the policy of lowering interest rates. Unlike traditional economics, Erdogan believes that high interest rates are the cause of inflation.

Turkey, the stock market has collapsed!  |  Blog post

Turkey’s past interest rate cuts have not lowered inflation.

This is the second “three deaths from stocks, debts and remittances” in Turkey this year. At that time, the Turkish financial center staged a thrilling scene: the stock market collapsed and the circuit breaker four times in two days; the price of government bonds fell sharply and the yield on 10-year government bonds climbed to 17.25%, the largest increase in history; the decline of the turkish lira was once close to its lowest in history. level.

The last time the Turkish financial market collapsed was caused by investor panic over the departure of the former governor of Turkey’s central bank. Turkish President Erdogan and the governor of the country’s central bank Abar disagree on the management of economic issues. Erdogan removed Abar from his post and appointed a new central bank governor. At present, it is not yet since Abar took office. At least 5 months. Since then, Turkish President Erdogan has also replaced the Turkish finance ministry, replacing two deputy finance ministers and two senior officials in charge of public finance, economic projects and research.

Erdogan put his economic philosophy into practice and believed that interest rates would be reduced again in the future. The Turkish financial market is expected to continue to fluctuate strongly in the future.