After last month’s surprise 2% increase, the Central Bank of Turkey is today expected to raise interest rates again.
Before September, President Recep Tayyip Erdogan—who has attacked the Central Bank’s authority to independently manipulate interest rates (particularly raising them)—commanded the bank to gradually lower interest rates in order to stabilise the lira. This led to inflation, which subsequently weakened the Turkish currency. In response, the Central Bank increased interest rates by 2% in September to restore a disinflationary process and slow the pace of credit growth for stability.
The Turkish economy is in a precarious position, as interest rates were expected to stay at 8.25% to catalyse economic growth through 2021 without relying greatly on foreign reserves. With interest rates expected to rise again, investors will be hard-pressed to assess the state of Turkey’s economic health and Ankara’s ability to navigate fiscal uncertainty. Moody’s downgraded Ankara’s debt rating in September over concerns that a weak lira, vulnerabilities to external events and state failure to address a deteriorating credit environment will lead to further economic crisis. As uncertainty persists, investors could use behind-the-scenes moves that stealthily change interest rates to anticipate future official rate hikes or cuts.
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An international finance and strategy professional, Niko serves on the Current Developments Team with a focus on global business and policy trends in order to understand the key drivers of international investment. Niko's specific interests are in energy, emerging and frontier markets, and trade policy; he contributes regularly to the Daily Brief