(Bloomberg) -- Turkish bonds and stocks rebounded as top economic officials sought to reassure foreign investors about last week’s detention of Istanbul Mayor Ekrem Imamoglu, a move that triggered billions of dollars in outflows.
Finance Minister Mehmet Simsek promised to do “whatever it takes” to stabilize financial markets, according to people who joined a teleconference organized by Citigroup Inc. and Deutsche Bank. Officials described the recent market turmoil as a temporary event, they said.
Simsek emphasized that Turkey still offers strong long-term opportunities while downplaying Imamoglu’s arrest, saying it was linked to corruption allegations, said the people, who asked not to be identified speaking about the private meeting with investors on Tuesday.
Simsek and central bank Governor Fatih Karahan reinforced President Recep Tayyip Erdogan’s pledge yesterday to maintain the broadly investor-friendly policies in place since mid-2023, seeking to avoid mass selling of the lira by Turkish residents.
Turkey’s sovereign bonds were the leading performers among emerging-market debt while the country’s main equities index jumped more than any other stocks gauge on Tuesday. The lira was steady against the dollar, helping reassure investors after the currency’s 3% tumble last week.
“Most of the outflows seems to have been foreigners,” said Timothy Ash, a senior EM sovereign strategist at RBC Bluebay. There’s “little evidence of dollarization by locals, which would be a game changer,” he added.
Last Wednesday’s detention and later formal arrest of Imamoglu, Erdogan’s most formidable and most popular political rival, has led to mass street protests and sent Turkish assets tumbling.
Authorities have taken emergency measures to stem the financial rout, including raising a key overnight interest rate, intervening in the exchange rate, and banning short-selling of Turkish equities.
Officials on the call appeared to be comfortable with the current level of policy tightness, but stressed they are prepared to take steps if needed, the people said. In a short statement, the Finance Ministry said that about 4,500 investors attended the call.
“We will never allow the gains we have made from the economy program implemented in the last two years to be harmed,” Erdogan said in televised remarks after a cabinet meeting on Monday. “Our institutions have both the authority and the will to ensure healthy market mechanisms.”
The lira stabilized after Erdogan publicly endorsed Simsek’s economic program, and was trading little changed at 37.9743 per dollar as of 6:45 p.m. in Istanbul. Turkey’s main equities index closed 4.5% higher, extending Monday’s advance after a 17% drop last week.
While seeking to assuage investors, the government has showed no signs of backing down to protesters who’ve been staging street rallies for nearly a week, with Erdogan describing the demonstrations as “evil.” He blamed the opposition’s reaction for market volatility. Turkish authorities have detained 1,418 people in “illegal” protests since March 19, Interior Minister Ali Yerlikaya said.
Turkish Foreign Minister Hakan Fidan is slated to meet with his US counterpart, Secretary of State Marco Rubio, in Washington on Tuesday. US officials have largely avoided criticism of Turkey since Imamoglu was detained, with State Department spokeswoman Tammy Bruce last week calling it an internal judicial matter.
Market Rout
Ozgur Ozel, chairman of Imamoglu’s party, the Republican People’s Party, called on Monday for the boycott of brands and companies he said were affiliated with government circles. They ranged from media companies to gas stations and a chain of coffee shops.
Turkey’s stocks and currency posted the biggest drops globally last week, and yields on local-currency bonds surged. That was despite the central bank efforts on the foreign-exchange market with an injection of $11.2 billion on March 19 alone, according to Bloomberg Economics’ estimates.
Simsek said 60% of dollar demand came from foreigners during the selloff last week, 30% from local corporates and 10% from retail investors, according to the people on the call.
The central bank also hiked its overnight rate in an unscheduled meeting on Thursday, then convened executives from the nation’s top lenders on Sunday in another attempt to stem the fallout.
Authorities are meanwhile weighing additional measures to mitigate market volatility, including reducing a withholding taxes on lira deposits, to dissuade locals from converting their lira savings into dollars.
The central bank has been draining excess lira liquidity from the financial system at a record pace, a move aimed at reinforcing tight monetary policy and backstopping the currency. Data compiled by Bloomberg showed excess liras in the system declined to around 234 billion liras ($6.2 billion) on Tuesday from 1.2 trillion liras on March 18, the day before Imamoglu’s detention.
“It looks like officials are trying to draw a line in the sand, hoping that the political storm will blow over and markets will forget the whole thing,” said Nick Rees, the head of macro research at Monex Europe Ltd in London. “For now, it seems to be working.”
--With assistance from Firat Kozok, Beril Akman and Onur Ant.
(Updates with further readouts from investor call starting in the second paragraph, adds latest markets and more analyst comments.)
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