EMERGING MARKETS-Stocks hit 3-month low; Turkish cbank delivers hefty rate hike

Emerging market stocks hit an over three-month low on Thursday as risk sentiment waned after the U.S. Federal Reserve stiffened its hawkish monetary policy stance, while Turkey's lira lost ground despite a big interest rate hike by the country's central bank.

Emerging market stocks hit an over three-month low on Thursday as risk sentiment waned after the U.S. Federal Reserve stiffened its hawkish monetary policy stance, while Turkey's lira lost ground despite a big interest rate hike by the country's central bank. After the Fed left rates unchanged as widely expected on Wednesday, markets focused on the possibility of borrowing costs staying significantly tighter through 2024 than previously expected after the central bank's updated quarterly projections.

MSCI's gauge for emerging market equities slid 1.3% to its lowest since early June, while currencies slid 0.3% by 1135 GMT against a steady dollar. China's blue-chip CSI 300 Index index hit an over ten-month low while Hong Kong's Hang Seng Index dropped 1.3%

The lira slipped to 27.10 per dollar after Turkey's central bank raised its key interest rate by a lofty 500 basis points to 30% on Thursday as expected and reiterated its willingness to raise rates further. Turkey's main stock index was down 0.1%, while the banking index gave up earlier gains and was last flat.

The hike "does enough to show commitment to the orthodox correction of policy on interest rates but it won't be sufficient to tame inflation in the near-term. There is some more pain still in store," said Hasnain Malik, managing director of emerging and frontier markets equity strategy at Tellimer. The lira has drifted weaker in recent days after a jump late in August following a shock 750-basis-point rate hike from the Turkish central bank.

After a historic currency crash in late 2021 and given surging inflation, President Tayyip Erdogan set aside years of opposition to tight monetary policy and publicly backed it this year. Later in the day, markets await the South African central bank's monetary policy decision where the regulator is widely expected to keep the repo rate on hold at 8.25%. The rand fell 0.3% ahead of the decision due at 1300 GMT.

In central and eastern Europe, Hungary's forint fell 0.9% versus the euro amid some bets on chances of bigger interest rate cuts after the central bank chief forecast inflation could decline sharply by December. For GRAPHIC on emerging market FX performance in 2023, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2023, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets For CENTRAL EUROPE market report, see

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