The Turkish central bank’s unexpectedly hawkish interest-rate hike sparked a rally in the country’s assets on Thursday. The move impressed several market watchers, but also prompted questions about what it signals about future policy decisions.
The central bank, led by Governor Hafize Gaye Erkan and a new lineup of monetary officials, raised the benchmark one-week repo rate to 25% from 17.5%, far beyond the 20% predicted in a Bloomberg survey of analysts. The jumbo hike is the latest indication that Turkey is prepared to move away from unorthodox policies to curb inflation running near 50%.
“A clear commitment to moving real rates to positive territory is a prerequisite for the lira to become an attractive carry trade;” the decision “is certainly a more forceful step in that direction compared to the prior gradualist approach.” “The impact of this decision on reducing the pressure on the lira and de-dollarization will likely be seen in the coming period.”“It’s really hard to get excited about this hawkish surprise after two straight dovish surprises. Let’s talk after the next decision Sept. 21 and if it delivers another large hike, perhaps things really have changed.”“The CBRT’s reaction function under Governor Erkan has been difficult for investors to gauge.
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