May 14, 2018 / 10:12 AM / 8 days ago

EMERGING MARKETS-Lira tests record lows, pressure eases elsewhere

LONDON, May 14 (Reuters) - A softer dollar eased some of the pressure on emerging markets (EM) on Monday, though Turkey’s lira slipped back towards a record low after a further widening of the country’s current account deficit.

The currency traded at 4.35 per dollar as the data added to worries that Turkey’s central bank will be unable to rein in double-digit inflation amid fierce political resistance to higher interest rates.

The lira has lost more than 12 percent of its value against the dollar this year, with extra pressure from political uncertainty ahead of snap parliamentary and presidential elections set for June 24.

SEB bank’s chief emerging markets strategist Per Hammarlund said that though Turkish policymakers were voicing serious concerns about the lira’s plunge, they remained reluctant to back the measures that might steady it.

“It’s remarkable as the lira is weakening (today) even though other EM currencies are strengthening,” Hammarlund said. “That is normally a sign for the central bank to act in one way or another.”

Turkish President Erdogan is speaking in London on Monday, with big fund managers likely to be listening to see whether he reiterates comments made last week that high interest rates are the “mother and father of all evil”.

Moves among a number of other heavyweight EM currencies and stock markets were more positive.

Poland’s zloty, the Czech crown and Hungarian forint were all higher against the dollar, while Russia’s rouble and Mexico’s peso both bounced, the latter as upbeat U.S.-China trade noises boosted hopes for NAFTA talks.

Ahead of trade negotiations with China this week, U.S. President Donald Trump pledged to help U.S.-sanctioned Chinese telecoms giant ZTE “get back into business, fast”.

China’s foreign ministry then said the country appreciated the U.S. position on ZTE.

Asian shares hit near two-month highs with blue-chip Chinese stocks closing up almost 1 percent and Hong Kong and Philippine markets up 1.35 and 2.4 percent respectively.

The Malaysian ringgit also steadied after an early fall had pushed it to its lowest for more than a year following last week’s shock election win for 92-year-old Mahathir Mohamad.

On Saturday, Mahathir appointed Lim Guan Eng as finance minister, best known as the chief minister of Penang, the second richest state in the country, a move seen by many as investor friendly.

INDIA, ARGENTINA

India’s rupee slipped to its lowest since February 2017 as wholesale price inflation there jumped. As India imports a lot of oil, high crude prices usually hurt its economy.

Argentina’s battered peso was starting the week near record lows meanwhile, following its 12-percent slump this month.

Its central bank has raised interest rates to 40 percent and has been intervening heavily in foregin exchange markets in recent weeks to try to prevent a return to full-blown crisis. But even talks for an International Monetary Fund (IMF) financing line have failed to bring calm.

Many Argentines blame IMF-backed policies of the late 1990s for the country’s 2001/02 economic meltdown. Some opposition politicians and activists have voiced concerns that the deal being drawn up in Washington will require painful fiscal belt tightening.

Industrial leaders and owners of small and medium-sized businesses, represented by a chamber known as CAME, met with President Mauricio Macri on Friday to discuss the upcoming IMF deal.

“He assured us that the resources will be used to calm the market and reactivate the economy,” CAME said a statement. “The president gave us a lot of reassurance in terms of the scope and conditions of the agreement with the IMF.”

For GRAPHIC on emerging market FX performance 2018, see tmsnrt.rs/2e7eoml For GRAPHIC on MSCI emerging index performance 2018, see tmsnrt.rs/2dZbdP5

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see)

Additional reporting by Claire Milhench

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