The operation of Turkey’s interest rate corridor means that the true extent of monetary tightening announced at last night’s emergency MPC meeting is a little less than the aggressive hike in the benchmark one-week repo rate would otherwise suggest. Nonetheless, the bigger picture is that the central bank seems to have finally accepted the need for tighter policy – in the process defying government pressure to keep rates low. Vulnerabilities remain, but last night’s move should bring some stability to Turkey’s financial markets over the coming weeks.
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