In Turkey, Rate Increase Opens Fault Line

In Turkey, Rate Increase Opens Fault Line

Our concern in Turkey shifts to the role of now-independent monetary policy. Last week, the Turkish Central Bank raised interest rates by 50 basis points to bolster the lira and clamp inflation. The move was expected, but larger-than-anticipated. President Erdogan took the opportunity to be overtly critical of the decision, opening a fault line in the nation’s institutional framework. Pressure for political compliance by the central bank is unlikely to diminish; we may see further interest-rate hikes as a partial result of strength in the US dollar. Global investors will be less forgiving of high-level meddling in monetary affairs, than they have been of the far-reaching, coup-related leadership purge. In an emerging-market setting, economic-policy confidence plays an outsized role in cross-border allocation decisions.

Learn more at Reuters.

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Image shows traditional Turkish design. Credit: Hypnocreative at Can Stock Photo Inc.