Turkish markets, lira nosedive on corruption probe

Photo: Turkish markets, lira nosedive on corruption probe
 / Turkey

Turkish equities and the lira fell on Tuesday after media reports said police had detained well-known businessmen and three Cabinet ministers' sons the same day as part of a widespread investigation into alleged bribery linked to public tenders Today`s Zaman reported.

Police carried out dawn raids in the main commercial city of İstanbul, detaining at least 18 people, including prominent business figures, and searched the headquarters of the state-run Halkbank in the capital, Ankara. The reported raids were the focus of market attention, overshadowing a Central Bank of Turkey decision later in the day that kept rates on hold.

The main stock index was down 5.77 percent at 70,527 points, well below a 0.19 percent rise in the wider emerging markets index. The lira weakened against the US dollar to 2.042 from 2.0268 late on Tuesday. The yield on the 10-year benchmark bond rose to 9.65 percent in thin trade from 9.45 percent on Monday. Investors in Turkey usually react to domestic political developments quite fast, a fact that has fueled stock market uncertainty and undermined rises in shares in the past. Emerging stocks edged up on Tuesday ahead of a US Federal Reserve meeting that may decide on a withdrawal of monetary stimulus, while Turkish stocks were hit by the high-profile detentions as part of the investigation into the alleged bribery.

The Fed was due to begin its two-day meeting on Tuesday to discuss scaling back its $85 billion in monthly bond-buying. Opinion is divided on whether it will move this week or wait for January -- or March. Turkey has depended on cheap foreign capital to finance its large current account deficit (CAD). It is feared that this will dry up when the United States begins trimming its stimulus.

Shares in state-run lender Halkbank fell drastically -- by 13.92 percent -- after sources familiar with the matter said financial police had searched its headquarters in Ankara. Turkey's five-year credit default swaps rose three basis points (bps) to 192 bps, according to global financial information company Markit.

In a written statement issued Tuesday afternoon, Halkbank said prosecutors had asked for certain documents relevant to the allegations of corruption and that it would keep the public informed.

Market experts have criticized the Bourse İstanbul (BIST) for not withholding trading of Halkbank shares until the investigation concludes. "While the details are not being disclosed at this stage, the flow of news is likely to dampen market sentiment until there is clarification of the issue," a note from Finansbank said.

The value of Turkish carmaker Tofaş's shares also fell as much as 5.26 percent on Tuesday after it stated in a stock exchange filing late on Monday that it had received a tax fine.

Central bank keeps key rates unchanged

The central bank kept its main interest rates on hold on Tuesday but said it would maintain cautious monetary policy until the outlook for inflation falls in line with its medium-term targets.

The bank kept its main policy rate, the one-week repo rate, at 4.5 percent, its borrowing rate at 3.5 percent and its overnight lending rate at 7.75 percent, it said in a statement after its monthly monetary policy committee meeting. It also left primary dealers' overnight borrowing rate from the central bank unchanged at 6.75 percent. Turkish stocks dropped more than 4 percent after the detentions. The maximum amount of one-week repo funding would be cut to TL 6 billion ($2.96 billion) from TL 10 billion, and the funding facility to primary dealers would be cut to TL 6.5 billion from TL 23 billion, the bank said.

After the central bank announcement, the lira stood at 2.036 against the dollar from 2.04 beforehand, while equities remained focused on the corruption probe.

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