Social Network

Economy

An emergency 300bps rate hike but…

The bank waited too long to react to the very sharp slide in lira as the uneasiness about Turkish macro economic imbalances turned into a confidence crisis. Thus, it looks unlikely that lira will gain ground strongly. Stabilization around 4.50 looks likely for the moment.

An emergency 300bps rate hike but…

The Central Bank of Turkey’s Monetary Policy Council had an emergency meeting and delivered 300 bps rate hike that the market was anticipating.  Lira/USD eased down to 4.57 as a first reaction than moved back to 4.65 and is floating around 4.58.

The bank waited too long to react to the very sharp slide in lira as the uneasiness about Turkish macro economic imbalances turned into a confidence crisis.  Thus, it looks unlikely that lira will gain ground strongly.  Stabilization around 4.50 looks likely for the moment.

It seems volatility will continue in the coming days with investors eyeing the Bank’s scheduled meeting on June 7; perhaps for more rate hikes.  If the bank was free to act before lira’s slide got out of control, then the necessary rate hike could have had been lower with also higher impact.  Now, the market is anticipating another round for the June 7 meeting. Thus, if JUne 7 meeting also produces a rate hike to a tune of 100-150 baisis points, USD/lira is likely to get stuck within 4.30-4.5 range until the elections which is an already high level to hurt Turkish corporate sector has huge fx debt pile amounting to 30 percent of GDP.

————————————-

The Bank’s announcement is as follows:

The Monetary Policy Committee (the Committee) has decided to set the short term interest rates at the following levels:

a)  Overnight Interest Rates: Marginal Funding Rate has been kept at 9.25 percent and borrowing rate has been kept at 7.25 percent,

b)  One-week repo rate has been kept at 8 percent,

c)   Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate has been kept at 0 percent, while lending rate has been increased from 13.5 percent to 16.5 percent.

Current elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior. Accordingly, the Committee decided to implement a strong monetary tightening to support price stability.

The Central Bank will continue to use all available instruments in pursuit of the price stability objective. Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement.

It should be emphasized that any new data or information may lead the Committee to revise its stance.

The summary of the Monetary Policy Committee Meeting will be released within five working days.

Banner

Related News

Related News