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28 Jan 2014
Flash: A rate hike in Turkey would not be the solution - BBH
FXstreet.com (Barcelona) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman, expressed his doubts regarding the effectiveness of a rate hike in Turkey.
Key Quotes
"The Turkish central bank will announce the decision from its extraordinary meeting today at 22:00 GMT. Markets are expecting something around 225-250 bp of hikes to the overnight lending rates (the top of the corridor), but we wouldn't be surprised if they hiked 300 bp."
"There is also some speculation that capital controls are being considered, but this would be a very dangerous move given the country’s reliance on hot money flows to finance its current account deficit. If there was ever an opportunity to deliver a hawkish surprise, this would be it."
"TRY has rebounded over 3% against the USD following the announcement Monday, demonstrating that if the central bank plays along, so will markets (at least for now). The short covering seen so far could continue if the central bank delivers."
"But if they don't deliver, it will be bloody. Looking further out, we do not think an aggressive rate hike will have much effect, as poor fundamentals and heightened political risk remain in play for Turkey."
Key Quotes
"The Turkish central bank will announce the decision from its extraordinary meeting today at 22:00 GMT. Markets are expecting something around 225-250 bp of hikes to the overnight lending rates (the top of the corridor), but we wouldn't be surprised if they hiked 300 bp."
"There is also some speculation that capital controls are being considered, but this would be a very dangerous move given the country’s reliance on hot money flows to finance its current account deficit. If there was ever an opportunity to deliver a hawkish surprise, this would be it."
"TRY has rebounded over 3% against the USD following the announcement Monday, demonstrating that if the central bank plays along, so will markets (at least for now). The short covering seen so far could continue if the central bank delivers."
"But if they don't deliver, it will be bloody. Looking further out, we do not think an aggressive rate hike will have much effect, as poor fundamentals and heightened political risk remain in play for Turkey."