Financial markets in Turkey have experienced a fresh period of turmoil, putting the country’s recovery from recession at risk and raising questions over the health of emerging markets as the world economy slows.

President Recep Tayyip Erdoğan’s government heaped pressure on Turkey’s banks on Wednesday to stop them lending the lira to overseas financial institutions, in a move that triggered the cost of offshore borrowing in the Turkish currency to surge by more than 1,000% overnight.

Turkey’s main index of leading company shares, the Borsa Istanbul 100, closed down 5.7% in the biggest daily drop since July 2016, as analysts warned that some investors had opted to sell local stocks instead of betting on the currency.

In a reflection of the mounting risks, Turkish bond yields rose on Wednesday, while credit default swaps – a form of insurance for investors against bond defaults – hit a level 100 basis points higher than the start of the week.

The currency lost another 1% in early trade in Asia on Thursday with heavier losses prevented by continued stringent controls on liquidity by Turkey’s central bank.

William Jackson, the chief emerging markets economist at the consultancy Capital Economics, said: “The scale of the tightening of financial conditions is similar to that during the 2011-12 eurozone debt crisis.”

via The Guardian