August 29, 2018 / 8:52 AM / 3 months ago

EMERGING MARKETS-Turkey's lira tumbles after Moody's warning, FinMin comments

LONDON, Aug 29 (Reuters) - Turkish markets took another hard knock on Wednesday, with the lira tumbling 2 percent against the dollar and leading losses across emerging markets.

The Indian rupee and Argentine peso hit record lows.

The latest Turkish losses were linked to Moody’s warnings over the banking sector and comments from Finance Minister Berat Albayrak, who said he did not see a big risk to the economy or financial system.

Moody’s downgraded 20 Turkish financial institutions , saying that a further shift in investor sentiment could curtail wholesale funding for a sector that has borrowed heavily overseas.

In another sign of deterioration, Turkey’s economic confidence index fell 9 percent month-on-month in August to its lowest since March 2009.

The central bank has doubled banks’ borrowing limits for overnight transactions but analysts say such measures are short-term fixes for an overheating economy and overly loose monetary policy.

“Clear evidence now of a very hard landing in Turkey,” BlueBay strategist Tim Ash said in a note, adding that the only question was how deep economic recession would be.

He called the problem “totally self-inflicted” and said the policy response had lacked credibility.

Turkish sovereign and bank dollar bonds fell as much as 0.8 cents and five-year credit default swaps (CDS) jumped 11 basis points (bps) to 498 bps according to IHS Markit.

Elsewhere, as the dollar rose off four-week lows, the Indian rupee fell 0.6 percent to a record low while Argentina’s peso hit new lows overnight, losing 1.7 percent.

Moody’s warned Argentina was sliding into a recession that could extend into next year.

China’s yuan weakened 0.3 percent and mainland shares fell 0.4 percent as the head of the state planning agency warned China faced increasing economic risks in the second half of the year.

There is still no end in sight for Beijing’s trade dispute with the United States, with the deadline for comment on increased tariffs on $200 billion of Chinese goods expiring on Sept. 5.

South Africa’s rand lost 0.7 percent and Russia’s rouble 0.4 percent in the broad-based sell off.

But Mexico’s peso bucked the trend, firming 0.3 percent, in the wake of an agreement between Mexico and the United States to overhaul the North American Free Trade Agreement (NAFTA).

MSCI's benchmark emerging stocks index slipped 0.15 percent, off Tuesday's 2-1/2-week highs For GRAPHIC on emerging market FX performance 2018, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2018, see tmsnrt.rs/2dZbdP5

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see) (Reporting by Claire Milhench; Editing by Angus MacSwan)

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