EMERGING MARKETS-Lira plumbs all-time low on policy misstep fears

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* Lira hits 10.45 per dollar

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* EMFX rebound after Tuesday’s slide

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* African rand hits 1-month low before recovering

* EM shares break 7 day winning streak

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Nov 17 (Businesshala) – Turkey’s lira hit a record low on Wednesday on concerns of a monetary policy misstep, while emerging market stocks hit a seven-day high with rising COVID-19 cases hurting sentiment. Rally broke.

After falling nearly 3% on Tuesday, the lira slipped to $10.45 against the dollar, bringing its 2021 loss to 28% – the worst among EM peers.

Bowing to political pressure, the central bank on Thursday cut the policy rate by 100 basis points to 15%, slashing the rate by 400 bps from September, while raising inflation to around 20%. Erdogan has turned several central bank chiefs and members into his campaign for lower rates, in hopes it will boost economic growth.

“After another 100bp rate cut at the November meeting, the central bank will halt its front-loaded easing cycle at least until the end of the year,” said Muhammat Merkan, chief economist – ING at Turkey, citing moderation in some cores Giving said. Inflation indicators among others.

Most other EM currencies rallied after the dollar rallied on strong US retail sales data on Tuesday, as investors raised policy bets in the United States.

MSCI’s EM currencies index was flat after posting its worst session in 10 weeks, with the Chinese yuan up 0.2%, while South Africa’s rand and Russia’s ruble rose 0.3% and 0.5%, respectively.

The rand fell to its lowest level since the beginning of January, before consolidating. State power utility Eskom said it saw an increased risk of rotational power cuts as many units at its power stations were not operating at full capacity due to unplanned maintenance.

Wednesday’s data showed inflation for October remained unchanged over the previous month, with September retail sales significantly outpacing the central bank’s rate decision later on Thursday.

A Businesshala poll saw the rate as 3.5%, but a majority of participants said it was too close to the call.

Rising geopolitical tensions over Ukraine and Belarus saw the Russian ruble cross $73. It was back below that level on Wednesday, despite the fall in oil prices.

Emerging market shares were down 0.1% in the red, with South Korean stocks down 1.2% as COVID-19 cases rose in the Southeast Asian country.

But gains for mainland China stocks and a new record high for South African stocks were among those limiting the losses of the broader index.

Turkey shares were up 0.4% after a one-day pause. The index has climbed for 20 out of the last 22 sessions. It rose nearly 23% in that time, reaching a record high on Tuesday.

For a graphic on emerging market FX performance in 2021, see tmsnrt.rs/2egbfVh Look for a graphic on MSCI’s emerging index performance in 2021 tmsnrt.rs/2OusNdX

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Reporting by Susan Mathew in Bengaluru; Editing by Rashmi Aichi


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