29 Jan 2014
Flash: First step in Turkey to tackle the lira debacle - BTMU
FXstreet.com (Barcelona) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ, assessed the recent aggresive rate hike by the CRBT.
Key Quotes
"Most in the financial markets were expecting some decisive action by the Central Bank of Turkey to stem the decline of the lira and it duly delivered with a larger increase in key policy rates – the overnight rate moved from 7.5% to 12% while the one-week lending rate (the key one now) went from 4.5% to 10%. The effective monetary tightening is less than implied by these increases and we will this morning write a separate ad hoc publication outlining the details and our views for the lira going forward."
"But what this action does show is that emerging markets are under increasing pressure to respond to currency depreciation and risks of inflation. India have already announced a surprise rate increase this week with the RBI emphasising a new focus on a more formal inflation targeting regime while other central banks are likely to follow Turkey’s action earlier today."
"Actions to stem the inflation threat and ensure an attractive level of real interest rates are crucial for ensuring external financing stability for current account deficit economies. While aggressive monetary tightening may raise growth outlook concerns, it has now become more urgent for central banks to indicate determination in breaking the cycle of currency depreciation and increased inflationary pressures."
Key Quotes
"Most in the financial markets were expecting some decisive action by the Central Bank of Turkey to stem the decline of the lira and it duly delivered with a larger increase in key policy rates – the overnight rate moved from 7.5% to 12% while the one-week lending rate (the key one now) went from 4.5% to 10%. The effective monetary tightening is less than implied by these increases and we will this morning write a separate ad hoc publication outlining the details and our views for the lira going forward."
"But what this action does show is that emerging markets are under increasing pressure to respond to currency depreciation and risks of inflation. India have already announced a surprise rate increase this week with the RBI emphasising a new focus on a more formal inflation targeting regime while other central banks are likely to follow Turkey’s action earlier today."
"Actions to stem the inflation threat and ensure an attractive level of real interest rates are crucial for ensuring external financing stability for current account deficit economies. While aggressive monetary tightening may raise growth outlook concerns, it has now become more urgent for central banks to indicate determination in breaking the cycle of currency depreciation and increased inflationary pressures."