Turkish lira, stocks decline on global worries as Carlyle fund defaulted

Istanbul's benchmark share index closed on Thursday 4.15 percent down at 42,421 points. Turkish stocks have underperformed other emerging markets this year after a stellar 2007. Lira traded around 1.24 levels against dollar, 1.5 percent weaker on the day taking the total lost in value to 6 percent since the end of last year. Yields on lira bonds also rose and traded close to 18 percent.

 

A trader said Fed's latest move to boost liquidity showed how deep the crisis was. "Concerns over a recession in U.S. persist and the trend in dollar is now upwards. 1.2550 level is very important for USD/TRY" she added. The Federal Reserve said on Tuesday it plans to lend up to $200 billion of Treasury securities in exchange for debt including private mortgage-backed securities that have slumped in value as homeowners defaulted on their payments.

 

Globally, markets slid on Thursday on the back of a new record price for oil over $110 a barrel and fears of a U.S. recession. Sell-off hit almost every emerging market. The dollar fell below 100 yen today for the first time since 1995 and to a record low against the euro after a Carlyle Group fund moved closer to collapse, triggering concern of more turmoil in financial markets.

 

The yen is a key currency for Turkish markets as traders use it to fund so-called carry trade investments in the high-yielding lira. "Sentiment for the dollar continues to deteriorate very, very rapidly and if we're not careful this will turn into a dollar crash," Mitul Kotecha, head of foreign-exchange research in London at Calyon, told Bloomberg.        Â

 

"The risk is that we see a fairly aggressive move sharply lower towards 95 yen, and that could really perk up the interest of the Bank of Japan."

 

The U.S. currency plummeted against a basket of six major trading partners to the lowest since the index began in 1973. The Dollar Index traded on ICE Futures in New York declined to 71.94, according to Bloomberg data.

 

Carlyle fund's statement increased tension in markets. Carlyle Capital Corp., co-founded by David Rubenstein, said in a statement it defaulted on about $16.6 billion of debt as of yesterday. Lenders will "promptly" take over all of its remaining assets and any remaining debt is expected "soon" to go into default, it said.

 

 

CBTR GOVERNER WARNS

 

The governor of Central Bank of Turkey Durmus Yilmaz said on Thursday there were signals that recent fluctuations in global financial markets had started to affect real sector in Turkey as well, citing a prospective "global slowdown" in growth, while International Monetary Fund (IMF) revised down Turkey's growth expectation to 4 percent.

 

Yilmaz said foreign exchange debt of Turkish companies creates credit risk for banks and maintaining fiscal discipline and implementing structural reforms are important to strengthen the Turkish economy against external shocks.  "The problem we had to deal with until now was liquidity but from now on we will have to deal with the problem of bankruptcy. If the loans are not going to be repaid then it means interest rates are losing their functions... There are increasing risks and uncertainty in international markets. And without doubt all countries will face a slowdown for a certain period and in varying intensity", Yilmaz told a meeting on monetary policies in Kayseri.

 

In Istanbul an IMF representative to Turkey said it revised its projections for the country's growth rate, reducing it around 4 percent for 2008 in line with recent global and regional developments and the Turkey's own revision of its GDP. "Growth pattern has been following a downward pattern since early 2007 and we are expecting it around four percent for 2008," Huseyin Samiei told an Istanbul meeting on Turkish economy and regional and global risks.

Samiei cited disciplined macro economic and monetary policies as the reason for the country's recovery from a 2001 crisis, single-digit inflation rate and reduction of public debts. Despite a global liquidity shrink, IMF representative cited increased foreign investments in Turkey, which he said "promised a positive environment and future."

"However, there is a risk that a crisis in global markets might disturb capital inflow into the Turkish banking system. There is a need for a strong policy framework to tackle the risk and to sustain investors' confidence," Samiei said.