October 3, 2018 / 9:00 AM / a year ago

EMERGING MARKETS-Turkish lira dips as inflation soars, broader emerging FX sluggish

Oct 3 (Reuters) - Soaring inflation hammered Turkish bonds and the lira on Wednesday and India’s rupee hit a fresh record low as high oil prices and a solid dollar kept the pressure on emerging markets.

The lira was firmly back above 6 to the dollar after data showed Turkish consumer prices surged nearly 25 percent in September, hitting its highest in over a decade as a deepening currency crisis pushed up prices of everything from food to fuel.

The lira fell as much as 2.15 percent against the dollar before paring losses to trade 0.9 percent weaker.

“The key point to note here is that headline inflation is above the central bank’s forecast. The central bank will need to react to this print. This is not something that could be ignored and they will have to hike at their next meeting,” said Inan Demir, senior emerging market economist at Nomura.

The central bank surprised investors by raising interest rates by 625 basis points last month, in efforts to support the lira that has fallen nearly 40 percent against the dollar this year, hit by concerns about President Tayyip Erdogan’s influence over monetary policy and a diplomatic rift with the Washington over a detained U.S. pastor.

The lawyer for pastor Andrew Brunson said he filed an appeal to Turkey’s constitutional court for his client’s release from house arrest. The next court hearing on Brunson’s case is on Oct. 12.

“We have a high-profile political event ahead of (the next central bank meeting), and if that is not resolved in a beneficial way, that means the central bank may have to react even earlier than at their next meeting,” said Demir.

Investors were also restrained ahead of Friday’s U.S. jobs data which could give more impetus for the Federal Reserve to raise interest rates this year and next, heaping more pressure on these currencies.

The Indian rupee hit a record low of 73.415 before recovering some ground after a report that the government was in talks with the central bank for a special dollar swap window with some state-run fuel retailers.

The Indonesian rupiah slipped to its weakest in two decades. Bank Indonesia flagged another possible rate hike to avoid “drastic capital reversals”.

A recovery for the euro from six-week lows after a report that Italy was planning to trim its budget deficit in the coming years, bolstered Central European currencies.

Poland’s zloty was 0.37 percent firmer, leading the gains in the region, while Hungary’s forint was 0.34 percent stronger. Romania’s leu and Croatia’s crown also gained.

Stocks markets in emerging economies treaded water, with Hong Kong and India holding back gains in the MSCI index for equities.

For GRAPHIC on emerging market FX performance 2018, see tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance 2018, see tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Sruthi Shankar and Aaron Saldanha in Bengaluru, additional reporting by Karin Strohecker in London)

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