News: NAB EMERGING MARKETS-Lira slides 1% as Turkey c.bank surprises with 100 bps cut

• Lira less than 2% away from record lows
• EM FX set for worst session in two months
• Fed to keep hiking interest rates - minutes
• Egypt may have to let pound fall to 25/$ - economist

(Updates after Turkey central bank decision)

The Turkish lira slumped 1% on Thursday after the country's central bank unexpectedly slashed the key lending rate despite surging inflation.

The lira led declines across emerging market currencies .MIEM00000CUS , which were hit by minutes from the U.S. Federal Reserve's most recent meeting which indicated it plans to continue hiking rates. The Fed however, tempered expectations for another 75 basis points hike in September.

High U.S. borrowing costs increase the appeal of the dollar and U.S. bonds, and tend to divert capital flows from riskier assets. This has led to currency crises in emerging markets in the past.

Turkey's central bank cut its key rate to 13% from 14% on Thursday, despite inflation having surged to nearly 80% with a peak of 90% seen by year-end.

The lira TRY= which was down 0.2% at around 17.96 to the dollar just ahead of the decision, slipped to 18.09 - less than 2% away from record lows of 18.4 hit in December.

The bank said the cut was aimed at driving economic growth and sustaining employment amid growing geopolitical risk. It added that rising loan rates have diminished the effectiveness of monetary policy.

Marek Drimal, lead CEEMEA strategist at Societe Generale expects the currency to end the year at 22 per dollar. The central bank move confirms an "unsupportive environment" for the currency going into this upcoming winter, he said.

"Huge cost of energy will strengthen the unsupportive environment, mostly from the balance of payments or current accounts. We expect a relatively solid, but gradual weakening in the lira."

Unconventional monetary policy, thanks to President Tayyip Erdogan's demand for stimulus, has hammered the currency in the aftermath of the pandemic. Support measures have helped stem the currency's plunge, but it is still down about 26% so far this year - among the worst performing emerging market currencies.

Turkish stocks .XU100 , which had briefly risen, slumped 1%with banks .XBANK sliding 2.9%.

Turkish dollarbonds bonds US900123BJ84=TE US900123AT75=TE US900123CG37=TE extended declines to hit two-week lows.

In Egypt, government bonds XS0505478684=TE also extended losses set-off by the abrupt resignation central bank chief Tarek Amer on Wednesday.

The Egyptian pound EGP= is down about 18% this year ahead of a central bank meeting later in the day, with a 50 bps rate hike to 11.75% expected.

But Capital Economics says the next governor may have to let the currency fall further to 25 per dollar by end-2024 from around 19 currently. For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance in 2022, see https://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

	<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
Egypt's bonds hit by debt worries	https://tmsnrt.rs/3bYP58X 

Turkish lira's decline https://tmsnrt.rs/3C9q8SS

	^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>