— This is the script of CNBC's news report for China's CCTV on May 24, 2018, Thursday.
US dollar firmed and US treasury yield rose are the main triggering factors for the dive of exchange rate in emerging market. We have seen that Argentine Peso and Turkish Lira experienced a substantial depreciation and were sold out by markets. And Turkey has joined Argentina to protect their currency, during the overnight, Turkey central bank urgently lifted late liquidity window rate, the lending benchmark rate.
Let's take a look over the trend of exchange rate for US dollars against Turkish Lira, from the start of this month to the overnight, Turkish Lira are not devalued only for 3 days. Currently, its cumulative depreciation in this month has reached 13%, leading the loss of the emerging market currency. Especially at local time on the 23rd, Lira hit a low record of the biggest one-day depreciation in 10 years, once reaching 5.2%.
At the same time, the exchange rate plummeted, as well as Turkish stock market and bond market, forming the triple kill status of "Stock-Exchange rate-Bond". And Turkish Central Bank was forced to hold non-routine meetings in the midday hours of US stocks on Wednesday; they announced to increase the emergency lending rate by 300 basis points, from 13.5% to 16.5%, but maintain other major interest rates unchanged.
Let's have a look on the trend chart of exchange rate for US dollars against Turkish Lira that till 9am today, we can see that there was an emergency correction of US dollars against Turkish Lira, which means the exchange rate of Turkish Lira against US dollars appreciated over 2%, rebounding over 3700 basis points compared to the lowest point in history.
In fact, there are many internal factors to Turkey, except for the firmed dollars and other external factors. That includes the President of Turkey, Erdogan. He reiterated his support to low interest rate policy and said if he wins in next month's election, he will strengthen the control over economy and be more involved in monetary policy; the central bank also have to act behind his back.
The market worries about Erdogan's position. The independence and credibility of the country's central bank suffered, weighting down the exchange rate of Turkish Lira. Some analysts of currency policy think that it's possible that the exchange rate of Lira has a further fall if Erdogan strengthens the control over central bank's policy. According to current information, some local companies have been in dilemma, if the central bank doesn't increase exchange rate to stop Lira to have a further depreciation, then Turkey's economy prospect may worsen suddenly. And Turkish people also feel worried about the continued devaluation of Lira; some exchange in Istanbul cancelled forex trading because of large fluctuations in exchange rate.
And the risk event that makes the market worry is that Turkey will hold election in next month, according to the election result of last year, Turkish administrative system will be changed from parliamentary to presidential. That means, once Erdogan wins, he will continue to lead Turkey for five years, while the rights expansion, including the control over the central bank, will put more negative risk on Lira, we will keep an eye on this issue.