Turkey Faces Economic Turmoil: Central Bank's FX Moves and Rate Cut Uncertainty

Turkey's banking index slid more than 4.5% amid fears that the central bank might delay interest rate cuts due to concerns over the lira's stability. After political detentions, Turkish stocks showed volatility, and the currency faced record lows. Large FX sales by the central bank indicated economic uncertainty.

Turkey's banking index plunged over 4.5% on Thursday, as concerns grew that the central bank might postpone or halt future interest rate cuts. This followed a sharp tumble of the lira on Wednesday.

Turkish stocks rebounded by 1% after a decline on Wednesday, triggered by the detention of President Erdogan's main opponent. The BIST-100 index exhibited volatility, rising slightly by 0.97% at 1048 GMT. However, it ended 8.72% lower at 9,860.29 points on Wednesday. The lira was flat at 38.0000 per U.S. dollar, after hitting a record low.

Amid the bank's volatility, significant FX sales by central authorities, estimated between $8-9 billion, were reported. Market analysts suggested this indicated a potential shift away from expected rate cuts, pointing to a possible implicit hike if foreign exchange pressures persist.

(With inputs from agencies.)