Turkey's main stock index plunged more than 5%, triggering market-wide circuit breakers for a second day as the market sell-off continued following the surprise firing of the central bank chief over the weekend.
The Borsa Istanbul 100 Index fell 5.4%, extending its steepest decline in nearly eight years. Stocks took the brunt of selling on Tuesday and the Istanbul Stock Exchange was once again forced to halt trading as circuit breakers flipped, first down 5% and then 7%. Later in the morning, stocks cut some losses and the lira stabilized near a record low.
The removal of Naci Agbal by President Recep Tayyip Erdogan sparked speculation that the monetary authority will break with its hard-line policies, leading to a drop in the lira and a rise in 10-year bond yields in more than 4 percentage points. Foreign investors have a large presence in Turkey's banking industry, and the country's lenders have led the equity falls.
Yigit Bulut, Erdogan's senior adviser, said the central bank would avoid any extraordinary steps under Agbal's successor, Sahap Kavcioglu. He also reiterated Erdogan's theory of monetary policy that high inflation is caused by high interest rates.
Erdemir and Garanti fell 7.6% and 9.9%, respectively, helping the Borsa Istanbul banking index drop 7.9%. Istanbul-based brokerage Ak Investment removed Garanti BBVA (MC: BBVA) and Yapi Kredi, the two Turkish lenders it had on its top pick list, from its model portfolio on Monday citing "increasing market volatility."
The lira was trading 0.9% lower at 09:59 a.m. in Istanbul against the US dollar after falling 7.5% on Monday.
"Investors had to down a sour drink with another twist on the central bank," said Akber Khan, senior director of asset management at Al Rayan Investment in Doha. "With its proactive measures, Agbal had quickly gained precious credibility with investors, so its abrupt exit and lack of clarity on the way forward made investors fear the worst."
Erdogan's central bank has foreign cash coming out of Turkey. The yield on Turkey's benchmark 10-year local currency bond rose nine basis points to 18.98%, the highest since May 2019, following Monday's record jump of 483 basis points.