Well, Turkey is going to try and convince the market the central bank retains some shred of credibility in the face of the ongoing lira rout.
Predictably, this is another LLW hike, the second in a month. You’ll recall that the last time they tried this, it fell flat.
But that was 75bps, and this one is 300:
- TURKEY CENTRAL BANK RAISES LLW RATE TO 16.5%
That came on the heels of an “emergency” meeting, which many suggested was absolutely necessary at this point, especially after the overnight action in Asia and the subsequent push above 4.90 on USDTRY later.
Here’s the annotated chart:
They’re doing their best Kuroda impression with the communications strategy, only in reverse. Just like the BoJ continually describes Kuroda’s easing as “very powerful” despite the fact that inflation generally refuses to move higher, Turkey is calling this “very powerful” tightening:
- TURKEY CENBANK SAYS RATE RISE `POWERFUL MONETARY TIGHTENING
To say that’s debatable would be an understatement and much like Kuroda’s “very powerful” easing has failed to engineer a sustainable rise in Japanese inflation, one imagines CBT’s “powerful” tightening will fail to arrest double-digit inflation in Turkey.
One person who ain’t buying it is BlueBay Asset Management’s Timothy Ash, who said this:
Over the past month or so CBRT credibility has been shot to hell. Why has the CBRT now done this 3 times, 13/14, 15/16, ie got so far behind the curve. Never learns. May well need to hike on June 7 again depending if this calms the market in the interim. https://t.co/U49au4kyQ7
— Timothy Ash (@tashecon) May 23, 2018
That speaks for itself.
Ultimately, Turkey is fucked. This is just a question of whether something restores the broader risk-on mood that’s supported EM for the past year. The fundamental picture is unchanged.
For now, we’ll just leave you with a chart that shows how things went after the last LLW hike:
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