The Turkish central bank has done it again, wrong-footing monetary policy predictions with its latest interest rate moves.
On Thursday, the central bank hiked its overnight lending rate by widening the interest rate corridor. While most analysts correctly predicted the central bank would leave its policy rate unchanged, few foresaw the overnight lending rate hike to 12.5 percent from 9 percent.
As Societe Generale’s emerging markets strategist Gaelle Blanchard put it: ”They managed to find another trick. This one we were not expecting.”
In August, the central bank shocked the market by cutting its benchmark rate despite inflation running well above its 5.5 percent target. Relying on higher banks’ reserve rate requirements to curb credit, it argued then that the rate cut was necessary to fend off the threat of a domestic recession heightened by a slowdown in global demand.
Initial market disapproval dissipated soon enough. Other emerging economies grappling with rising prices — including Brazil and Indonesia — also decided that the global recession threat was more significant than inflation.