ISTANBUL: Turkish stocks fell and the lira weakened Monday after Prime Minister Recep Tayyip Erdogan railed against speculators and held a tough line on protests, and as Moody’s warned that prolonged unrest could have a negative effect on credit. The cost of insuring Turkish debt against default rose to the highest since the end of October 2012, according to data from Markit, although it remained far from crisis level.
Moody’s, which raised Turkey to investment grade with a stable outlook last month, said the protests had heightened risks to the country’s balance of payments. It added, however, that the current level of risk was reflected in its rating and outlook.
Erdogan held six rallies Sunday, a measure of tensions after the worst rioting of his decade in power in which police fired tear gas and water cannons night after night last week to quell anti-government protests in various cities.
Speaking in Ankara, he rounded on what he a called a “high interest rate” lobby of speculators for causing volatility in the capital markets and vowed to “choke” those who were growing rich off “the sweat of the people.”
“Those who attempt to sink the bourse, you will collapse. ... If we catch your speculation, we will choke you. No matter who you are, we will choke you,” he said.
He urged Turks to put their money in state not private banks.
The lira weakened further after Moody’s statement.
“These political disturbances become increasingly credit negative the more they intensify and the longer they continue,” the rating agency said, warning a fall in tourist arrivals and portfolio inflows could increase balance of payments risks.
Last month’s Moody’s upgrade enabled more funds to invest in the economy after peer Fitch gave the country its first investment grade rating last November.
Istanbul’s main share index fell 1.7 percent to 76,997.16 points Monday after closing up 3.2 percent Friday. It lost around 15 percent last week as protests raged.
The lira weakened to 1.8988 against the dollar by 10:28 GMT from 1.8790 late Friday.
Friday it hit its weakest against its euro-dollar basket since October 2011, reaching 2.210 compared with 2.178 Thursday. It weakened again to 2.2050 after Moody’s comments.
“Comments from the central bank or the government could soften the weakening of the lira, especially if the prime minister makes positive comments, otherwise there is no reason for the lira to strengthen,” said one Istanbul-based banker.
The two-year benchmark bond yields fell to 6.27 percent in thin volumes from 6.55 percent Friday.
Timothy Ash, head of emerging market research at Standard Bank, said Erdogan’s outburst marked a change in attitude towards foreign investors.
“This marks an abrupt about-turn for an administration that has always appeared to value foreign investment and has been very sensitive to markets, and how markets perceive its policies,” Ash said. “That era now seems to have ended and the administration appears set on a collision course with foreign investors and with markets.”