Istanbul February 3 2023: Turkey’s benchmark stock index was poised for its biggest weekly decline this year as a combination of political uncertainty ahead of elections and surging lira deposit rates began luring cash away from equities.
Rates on three-month lira deposits have risen above 25%, the highest level since a currency crisis in 2018, after the central bank removed a cap on the rates last week to ease pressure on the currency. Following the move, lira deposits emerged as one of the biggest rivals to Turkish stocks.
“The increase in lira deposit rates as well as the faltering of the last year’s rally in equities seem to be triggering outflows from stocks and investment funds alike,” said Can Oksun, a senior trader at Istanbul-based Global Securities.
Turkish stocks have quickly gone from being the world’s best performers last year to the worst in 2023. Even with a 2.9% bounce on Friday, the index has dropped 5.9% this week, extending year-to-date losses to more than 11% in local currency terms, after testing a bear market on Thursday with a more than 20% decline from the peak.
The central bank lifted a cap on lira deposit accounts that are protected against foreign currency fluctuations following outflows from the flagship tool, which was introduced in late 2021. Demand among savers had weakened after a series of interest-rate cuts by the monetary authority, relative stability in the currency, and recent regulation banning the use of some derivatives.