Turkish lira in disarray, for Mark Mobius a currency crisis will soon affect other emerging countries as well

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Yet another flight from the Turkish lira unleashed by the declarations of the President of Turkey Recep Tayyip Erdogan returned to defend the monetary policy of the central bank which he himself, with his continuous and repeated expulsion of various bankers, forced to be expansive, in spite of the galloping inflation in the country (which reached around 20%).

The Turkish lira yesterday sank to a record low against the US dollar, capitulating to 13.44 against the US currency, well beyond the barrier of 11 which, last week, was considered “psychological” by analysts.

But Turkey may not be the only country facing a currency crisis given that prospect of higher interest rates in the US. So is emerging market investor Mark Mobius. The founding partner of the investment firm Mobius Capital Partners argued that countries with dollar debt will be hit by a rise in US interest rates.

Mobius did not specify which other countries are vulnerable to a currency crisis but the good news for him is that since the 1997 Asian financial crisis, many emerging markets have borrowed more in their local currencies.

An analysis released last week by Nomura investment bank indicated that the four emerging markets most at risk of an exchange rate crisis are Egypt, Romania, Turkey and Sri Lanka. The analysis considered indicators such as external debt as a percentage of gross domestic product, the ratio of foreign exchange reserves to imports and the stock market index.

“Looking ahead, the prospect of a normalization of monetary policy by the Fed amid the deepening Chinese economic crisis is not a particularly good combination for [i mercati emergenti]Nomura said in his report last week.

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