EMERGING MARKETS Turkey lira rises 2% after strong interest rate hike; EM stocks cheer the cautious Fed


* Turkey increases interest rate by 200 basis points

* Lira represents the best day since the appointment as the new Cenbank boss in November

* MSCI EM stock index up 0.6%; Fed promises to remain accommodating

* Russian ruble gives up profits; extended penalties threat dive

* Brazil’s real rises 1.7% after interest rate hike (updates following the decision of the Turkish central bank)

Mar 18 (Reuters) – The Turkish lira appeared to be awaiting its strongest session in four months on Thursday after the central bank hiked interest rates to curb inflation, while emerging market stocks posted handsome gains after the US Federal Reserve maintained its reluctance Attitude.

The lira was last listed at 7.345 per dollar after the central bank raised its key interest rate by 200 basis points to 19%, beating the consensus estimate for a 100 basis point hike. This leads to interest rate hikes under the central bank chief Naci Agbal, who was appointed in November, to 875 basis points.

“With a key interest rate of 19%, the TRY is not only one of the most attractive high-yield currencies in emerging markets in nominal terms, but also in real terms should become more attractive in the coming months as inflation begins to decline,” said Piotr Matys, Senior FX Strategist for Funds – and Eastern Europe at Rabobank.

The lira had gained around 20% since November as the central bank continued to hike rates. But the currency has given back some of those gains as rising inflation threatens to widen Turkey’s current account deficit, and there are also concerns about federal policy and pressures from rising US Treasury yields.

Overnight, the Brazilian central bank announced a stronger than expected rate hike of 75 basis points to 2.75% and in May announced a similar move to fight inflation despite mounting economic uncertainty.

The real rose 1.7% in the first few minutes of trading on Thursday.

Meanwhile, the MSCI index for EM stocks rose 0.6%, with India rallying on most of the other major indices from China to South Africa.

Its currency counterpart rose as much as 0.4% before losing some gains as rising US Treasury yields helped the dollar regain traction.

The Fed issued a robust outlook for US economic growth on Wednesday, saying that any rise in inflation should only be temporary and not warrant a departure from its accommodative stance.

Rating agency Fitch said it anticipates the Fed will begin tightening early next year, which could impact emerging economies given the US dollar’s “oversized role” in emerging market lending and global credit markets.

The Russian ruble gave up gains of up to 0.5% to trade 0.2% lower after fears of tougher sanctions sparked a 1% slump on Wednesday after US President Joe Biden in the US election In 2020 US President Joe Biden’s rhetoric against Russian counterpart Vladimir Putin had destroyed.

The actual type and extent of the sanctions due will be monitored next week, according to sources.

The South African rand fell 0.6% on Thursday, giving away its gains after the Fed. The Mexican peso suffered a similar fate.

For a GRAPHIC of emerging markets FX performance in 2021, see tmsnrt.rs/2egbfVh A GRAPH of the performance of the MSCI Emerging Index in 2021 can be found at tmsnrt.rs/2OusNdX

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The CENTRAL EUROPE market report can be found at

For the TURKISH market report see

For RUSSIAN market report, see

Reporting by Susan Mathew in Bengaluru; Edited by Subhranshu Sahu and Susan Fenton


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