Turkish policymakers are no strangers to unexpected action when in a tight corner, but analysts said Thursday's surprise interest rate hike could herald a change of tack on monetary policy.
LONDON - Turkish policymakers are no strangers to unexpected action when in a tight corner, but analysts said Thursday’s surprise interest rate hike could herald a change of tack on monetary policy.
“It was a bold move by the CBT which should restore credibility and improve investor sentiment,” said Christian Wietoska at Deutsche Bank, calling it a “game changer”. Turkey has frequently squeezed offshore currency markets and its President Recep Tayyip Erdogan sees foreign investment in Turkish financial markets as a hotbed of speculation and has lambasted high interest rates.
“The answer to foreigners trying to sell lira is not make it harder to sell, as this just encourages people to get out while they can and will deter them coming back,” Ash added. Turkey will also need to cement its commitment to tackling inflation and returning to a more orthodox monetary policy, though this comes at a difficult time after its economy contracted nearly 10% in the second quarter and is expected to shrink in 2020 as a whole.
The lira is one of the worst performing developing currencies so far in 2020 and has more than halved in value in just three years.
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