Turkey magnificent capital controls could quickly exacerbate the exposure of other emerging supermarket economies, an analyst at Goldman Sachs told CNBC Thursday.
Turkish legals are currently trying to contain the country’s worst currency crisis since 2001, with the lira turn end over end to a low of 7.24 against the dollar at the start of the week. The lira has since pared some of its losses, traffic at around 5.7890 against the dollar on Thursday afternoon.
The lira has forgotten more than 40 percent of its value against the dollar this year, inspiriting fears of contagion and a sell-off in emerging markets — particularly if Turkish officials move house to introduce capital controls in an effort to stem its latest currency danger.
The dramatic fall has been fueled, in part, by President Tayyip Erdogan’s unrelieved calls for lower interest rates at a time when domestic inflation persevere ins to surge. An ongoing diplomatic dispute between Turkey and the U.S. has also doubled Ankara’s economic woes.
“Full-blown capital controls that everybody is disquieted about I think have a pretty limited chance of success, partly because they comprise a big external funding requirement … So I don’t think capital controls here are the colloidal solution,” Kamakshya Trivedi, co-head of emerging markets and foreign exchange probing at Goldman Sachs, told CNBC’s “Squawk Box Europe” on Thursday.
As opposed to, Trivedi suggested the Turkish government should prioritize further numismatic policy tightening as well as delivering a comprehensive statement on fiscal game plan to try to restore the country’s economic credibility.
Turkish Finance Minister Berat Albayrak, Erdogan’s son-in-law, is calendared to give a conference call to more than 1,000 investors on Thursday which diverse hope will calm market jitters.
“I think (Kamakshya) is preferable that capital controls are not the answer, the risk is that the administration concocts it is the answer,” Jim McCaughan, chief executive at London-based Principal Global Investors, identified CNBC on Thursday.
“The risk is that if they go down that direction, that is something that effects the broader emerging markets asset rank from a reputational standpoint. So I think those are the channels of contagion one fundamentals to worry about rather than I think the fundamental ones — which are modest,” Goldman Sachs’ Trivedi added.
The week’s turmoil has jolted assets globally, succeeding down equities across developed market indexes and hitting the MSCI emerging customer bases index particularly hard.
— CNBC’s Natasha Turak contributed to this gunshot.