LONDON: Turkey's lira led emerging currency losses on Monday after inflation spiked to almost 18 percent in August, while the Indonesian rupiah fell to its lowest level since the Asian financial crisis.
The lira was down 1.5 percent after Turkish consumer price inflation rose to a near 15-year high of 17.9 percent in August, up 2.3 percent month-on-month. Producer prices leapt 32.13 percent.
But central bank comments that the inflation outlook showed "significant risks" to price stability and that it would adjust its monetary stance at its upcoming meeting on Sept. 13 in line with this view helped contain the losses.
"The market is taking this as a signal for a rate hike at that meeting," said Inan Demir, senior emerging economist at Nomura International.
"They should hike the one-week repo rate by about 500-550 basis points to address the deterioration in inflation - whether they will be able to do that is another question, but this is what is needed."
Turkey's Finance Minister Berat Albayrak told Reuters the central bank was independent of government and would take all the necessary steps. He also reiterated the currency sell-off posed no risk to the country's banks.
Turkish five year credit default swaps fell 10 basis points (bps) from Friday's close to 569 bps, while Turkish stocks rose 1.5 percent.
This was despite the fact that Turkish manufacturing activity contracted for the fifth consecutive month in August as output and new orders slowed on the back of the currency crisis.
In another sign of the pressure on emerging currencies, the Indonesian rupiah fell 0.7 percent to its lowest level since the Asian financial crisis in 1997-1998.
The rupiah has weakened nearly 9 percent against the dollar so far this year, one of the worst affected currencies in the emerging markets sell-off, despite repeated interventions from the central bank. Indonesia's inflation picked up in August, but remained within the central bank's target range.
Indonesian stocks fell 0.9 percent, while five-year credit default swaps rose to an eight-week high of 131 bps, according to IHS Markit data.
On a brighter note, Argentina's peso, which plummeted last week, firmed over 6 percent on Friday after the central bank auctioned $250 million in dollar reserves and the International Monetary Fund issued a strong statement of support for President Mauricio Macri's government.
The Indian rupee also firmed 0.2 percent from last week's record lows after economic growth surged to 8.2 percent, its highest in more than two years. However, manufacturing growth unexpectedly slowed in August as domestic demand softened.
Weak factory activity data from across emerging markets helped push MSCI's benchmark emerging stocks index down 0.5 percent to one-week lows.
China's factory activity grew at the slowest pace in more than a year in August, reinforcing views of a cooling in the world's second largest economy as the trade dispute with the United States drags on.
The United States is still set to impose 25 percent tariffs on $200 billion of Chinese goods once a public comment period ends on Thursday.
Chinese mainland shares fell 0.4 percent, despite the inclusion of another tranche of stocks in MSCI's EM index. Hong Kong shares slipped 0.6 percent weighed down by another 2.5 percent fall in Tencent amid China's crackdown on online gaming.
Other big fallers included South Korea, down 0.7 percent after factory activity contracted for a sixth successive month.
But Warsaw shares rose 1.05 percent, although Poland's manufacturing growth was at its lowest in 22 months. The zloty also firmed 0.2 percent against the euro.
Hungary's forint weakened a touch, with some disappointment that Fitch did not upgrade Hungary's sovereign rating in a review on Friday.