Turkey Delivers LLW Hike, But It’s Not Going To Be Enough Because They Have A Sultan Who Calls Himself ‘The Enemy Of Interest Rates’

Yeah, I could be wrong, but I don’t think this is going to be sufficient.

Turkey just delivered a 75bp hike in the late liquidity window to 13.5% from 12.75% (repo and O/N rates unchanged), and while that was more aggressive than expected, it’s 25bp short of what was likely needed to convince markets that the CBT is sufficiently free of Erdogan’s meddling to shore up the currency.

Here’s the knee-jerk:


Don’t forget the context here. CBT desperately needed to do something (anything, really) to help reassure the market in the face of Erdogan’s insistence on juicing the economy despite inflation pressures and against anything that even approximates economic orthodoxy. Analysts are divided about the effect on the lira from his decision to call for snap elections on June 24, some 18 months ahead of schedule.

On one hand, there’s an argument to be made that he’ll want a stable currency in the lead-up to the vote and if you really wanted to, you could I guess suggest that the sooner we get this over with the better as it removes some uncertainty and perhaps takes some of the pressure off in terms of his propensity to insist on publicly shrieking about FX and rates conspiracies.

On the other hand, the more power he has, the more likely he is to simply commandeer the central bank and insist on low rates come hell or high water. And really, what fucking uncertainty? There is no “uncertainty” about the outcome of the vote. I mean there is no chance of him “losing”.

Here’s an annotated chart that gives you a sense of the big picture here:


“Inflation expectations, pricing behavior and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered,” CBT said in a statement, adding that a “tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement, independent of base effects and temporary factors, and becomes consistent with the targets.”

That’s all fine and good, but remember, it’s not up to them, ultimately. It’s up to Erodgan. And don’t forget that in Erdogan, we’re talking about the self-declared “enemy of interest rates”, a man who just last November said this:

They say central banks are independent so we shouldn’t interfere. This is the end result because we haven’t interfered. Results speak for themselves.

We will solve this, things can’t go on like this.

So yeah, I’m not sure today’s token move by the CBT is going to be enough.


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