The Central Bank of Turkey kept interest rates on hold at 6.25% earlier this month and is now in ‘wait and see’ mode to evaluate the impact of its unconventional experiment with monetary policy (cutting interest rates while raising banks’ reserve requirements). With underlying inflation pressures set to build over the second half of the year, the resumption of rate cuts at a later date may create some presentational difficulties for the MPC. Accordingly, we think that interest rates have now troughed. However, with policymakers still wary of attracting potentially destabilising inflows of capital, the key point is that the necessary further monetary tightening is unlikely to take the form of interest rate hikes. Instead, additional increases in banks’ reserve requirements are likely over the coming months, and even potential limits on bank lending.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services