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Son, let's take a picture to tell the rise of the Turkish lira for once! The Turkish central bank celebrates its independence on Thursday by going against the country's president, who warned them all year of raising interest rates. Photographer: Ismail Ferdous / Bloomberg
Although interest rates are now higher than those of the failed Venezuelan state, the rate hike in Turkey on Thursday may well be the boost the economy needs. The central bank has gone mad, going against President Recep Erdogan who wants to keep rates low even with inflation well above the target (some will bring it closer to 90%). As a result, the MSCI Turkey Index (TUR) is expected to be up 5.9% today.
"Rising rates is a welcome signal for international financial markets," says Agathe Demarais, Senior Economist at the Economist Intelligence Unit (EIU). "The sharp depreciation of the (Turkish) currency means that external imbalances, which were previously high, are shrinking rapidly, which should have a positive impact on the reading."
Turkey's central bank raised the key rate to 24%. According to my measurements, the annual inflation is 90%, suggesting that many more rate hikes are in the cards: http://t.co/CNqPFkpNvV
– Teacher. Steve Hanke (@steve_hanke) September 13, 2018
Reading is the second worst performing currency in the world against the dollar, down 60% against the dollar since the beginning of the year. The lira has risen by about 4% today as a result of a central bank seriously concerned about rampant inflation.
Turkey 's interest rate is now 24% after the bank' s 625 basis point rise today, compared with the 60% interest rate in Argentina. Venezuela's rates are about 20%.
The decision of the Turkish central bank was widely followed by investors, who all congratulated themselves for finally showing signs of independence. This decision shows that the normalization of monetary policy conditions is a more important priority than supporting a rapidly decelerating economy following the August monetary crisis.
Let him mount Murat Cetinkaya, governor of Turkey's central bank. The bank raised interest rates by 625 basis points to 24 percent on September 13, 2018, in a desperate attempt to reduce inflation and build confidence in the country's monetary policy makers. Photographer: Kerem Uzel / Bloomberg
This crisis has caused shivers in the backs of emerging market investors who have begun to fear contagion across southern Europe, and even in the emerging markets. While Turkey has no direct link with emerging markets such as China or Brazil, the turmoil in Turkey, coupled with a crisis in Argentina and South Africa, is worrying riskier emerging markets.
"I only hear about the contagion of investors who went through the Asian crisis of 1997 that had a currency crisis in Thailand, then in Russia and later in Europe," says Scott Clemons, chief strategist at Brown Brothers Harriman . "I know you do not want to say" this time, it 's different ", but it' s different.We have different economic policies in these countries today. is not the beginning of an emerging markets crisis ".
Erdogan said that interest rates were an "exploitative tool" in a speech delivered today at the Confederation of Turkish Craftsmen in Ankara. New York Times reported. "I say, drop those high interest rates, interest is the cause, inflation is the result," he says. On August 12, the inflation rate reached 17.9%.
An employee watches a broadcast on the trading floor of the Borsa Istanbul Stock Exchange in Istanbul, Turkey. The MSCI Turkey grew by more than 5% due to rising rates. Photographer: Kostas Tsironis / Bloomberg
Inflation has been boosted by the weakness of the currency, making imports more expensive for Turkish companies.
Erdogan has banned companies in Turkey from using euros or dollars instead of the national currency on Thursday, a measure that will likely create an even bigger black market for foreign currency unless the central bank can do more to save the country. read.
"The pound will remain under pressure in the coming months due to the tightening of global liquidity conditions and tensions between Turkey and the United States," said Demarais.
In addition, Turkish companies have high levels of indebtedness in both euros and dollars, so a weaker reading is a hindrance for over-indebted companies. EIU thinks that some companies might have problems servicing their debt, mainly from banks in southern Europe.
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Son, let's take a picture to tell the rise of the Turkish lira for once! The Turkish central bank celebrates its independence on Thursday by going against the country's president, who warned them all year of raising interest rates. Photographer: Ismail Ferdous / Bloomberg
Although interest rates are now higher than those of the failed Venezuelan state, the rate hike in Turkey on Thursday may well be the boost the economy needs. The central bank has gone mad, going against President Recep Erdogan who wants to keep rates low even with inflation well above the target (some will bring it closer to 90%). As a result, the MSCI Turkey Index (TUR) is expected to be up 5.9% today.
"Rising rates is a welcome signal for international financial markets," says Agathe Demarais, Senior Economist at the Economist Intelligence Unit (EIU). "The sharp depreciation of the (Turkish) currency means that external imbalances, which were previously high, are shrinking rapidly, which should have a positive impact on the reading."
Turkey's central bank raised the key rate to 24%. According to my measurements, the annual inflation is 90%, suggesting that many more rate hikes are in the cards: http://t.co/CNqPFkpNvV
– Teacher. Steve Hanke (@steve_hanke) September 13, 2018
Reading is the second worst performing currency in the world against the dollar, down 60% against the dollar since the beginning of the year. The lira has risen by about 4% today as a result of a central bank seriously concerned about rampant inflation.
Turkey 's interest rate is now 24% after the bank' s 625 basis point rise today, compared with the 60% interest rate in Argentina. Venezuela's rates are about 20%.
The decision of the Turkish central bank was widely followed by investors, who all congratulated themselves for finally showing signs of independence. This decision shows that the normalization of monetary policy conditions is a more important priority than supporting a rapidly decelerating economy following the August monetary crisis.
Let him mount Murat Cetinkaya, governor of Turkey's central bank. The bank raised interest rates by 625 basis points to 24 percent on September 13, 2018, in a desperate attempt to reduce inflation and build confidence in the country's monetary policy makers. Photographer: Kerem Uzel / Bloomberg
This crisis has caused shivers in the backs of emerging market investors who have begun to fear contagion across southern Europe, and even in the emerging markets. While Turkey has no direct link with emerging markets such as China or Brazil, the turmoil in Turkey, coupled with a crisis in Argentina and South Africa, is worrying riskier emerging markets.
"I only hear about the contagion of investors who went through the Asian crisis of 1997 that had a currency crisis in Thailand, then in Russia and later in Europe," says Scott Clemons, chief strategist at Brown Brothers Harriman . "I know you do not want to say" this time, it 's different ", but it' s different.We have different economic policies in these countries today. is not the beginning of an emerging markets crisis ".
Erdogan said that interest rates were an "exploitative tool" in a speech delivered today at the Confederation of Turkish Craftsmen in Ankara. New York Times reported. "I say, drop those high interest rates, interest is the cause, inflation is the result," he says. On August 12, the inflation rate reached 17.9%.
An employee watches a broadcast on the trading floor of the Borsa Istanbul Stock Exchange in Istanbul, Turkey. The MSCI Turkey grew by more than 5% due to rising rates. Photographer: Kostas Tsironis / Bloomberg
Inflation has been boosted by the weakness of the currency, making imports more expensive for Turkish companies.
Erdogan has banned companies in Turkey from using euros or dollars instead of the national currency on Thursday, a measure that will likely create an even bigger black market for foreign currency unless the central bank can do more to save the country. read.
"The pound will remain under pressure in the coming months due to the tightening of global liquidity conditions and tensions between Turkey and the United States," said Demarais.
In addition, Turkish companies have high levels of indebtedness in both euros and dollars, so a weaker reading is a hindrance for over-indebted companies. EIU thinks that some companies might have problems servicing their debt, mainly from banks in southern Europe.
