Turkey: CBRT cannot do it all to stabilise the lira

On Thursday, the Central Bank of the Republic of Turkey (CBRT) rose its key rate by 200bps to curb lira’s weakness.  According to analysts from Rabobank, the efforts from the central bank to stabilise the currency via higher interest rates should be accompanied by the Erdogan administration accelerating the pace of structural reforms.

Key Quotes: 

“The question is whether the 200bps hike will prove sufficient to stabilise the lira? While today’s move is a very important step in the right direction, as it reduces risk of inflation and financial stability, the CBRT will have to do more to restore shattered confidence in the lira not only amongst foreign investors, but also amongst domestic households and corporates.”

“Today’s decision provides the severely battered lira with a much needed respite. However, we have to mindful that the 200bps hike is just the beginning of a difficult challenge of restoring confidence in the lira. Efforts to stabilise the currency via higher interest rates should be accompanied by the Erdogan administration accelerating the pace of structural reforms. The CBRT cannot do it on its own.”
 

Credit: FX Street

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