Turkey unveiled a slew of measures on Wednesday as it sought to avoid the further escalation of a financial distress. Market reaction to the emerging market’s financial woes are being closely watched by investors as a gauge of broader sentiment.
Turkey moved Wednesday to make it harder to bet against the battered lira—down 20% in August—while unveiling measures that could make it easier to restructure sharply distressed corporate loans.
Investors cheered the moves, with the lira gaining nearly 4% in trading Wednesday. The iShares MSCI Turkey ETF climbed 3.6% in trading.
Turkey continued to put in measures to make it more costly to short the Lira. Turkey’s banking regulator also introduced new measures to allow banks to extend maturities, refinance loans, seek new collateral, extend new loans to companies, and demand that assets be sold to repay loans.
The move comes as a diplomatic standoff and increasingly protectionist measures in trade relations mount between Turkey and United States.
Market reactions to Turkey will be key in gauging broader investor sentiment. How the measures are received, whether the currency weakness spreads to other emerging markets, and the impact on broader risk assets can help inform investor sentiment to the robustness of global economic growth.
The country remains reticent to interest rate hikes even as investor pressure for them mounts amid the distress.