Aug 4, 2011
| Last Updated
- The Central Bank of Turkey (CBT) continued its heterodox monetary policy mix and surprised markets once again, cutting the one-week repo rate to support domestic economic activity while taking efforts to shore up the Turkish lira (TRY).
- The moves today reflect the CBT’s growing concern over global growth and the potential spillover effects of a global slowdown on domestic demand, as well as shifting risk sentiment and the effect on TRY.
- While the overall policy mix may have some merit, the CBT’s poor communication and lack of policy credibility could cause the decision to backfire, especially given Turkey’s large external financing needs. The two key areas of risk are inflation expectations and the size and frequency of FX-selling auctions by the CBT.
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