Last night the Turkish central bank (TCMB), at an emergency monetary policy meeting, announced an aggressive tightening of monetary conditions. The TCMB is responding to the recent sharp sell-off of the Turkish lira, which has pushed inflation expectations well above the TCMB's official 5% inflation target.
The TCMB took the following actions:
- Overnight interest rate was increased by 425bp from 7.75% to 12%.
- Borrowing rate was hiked by 450bp from 3.5% to 8% and the interest rate on borrowing facilities provided for primary dealers via repo transactions was hiked from 6.75% to 11.5%.
- One-week repo rate was increased from 4.5% to 10%.
- Late liquidity window interest rate (between 16:00 - 17:00) was kept at 0% and the lending rate was increased from 10.25% to 15%.
The tightening of monetary conditions is somewhat more aggressive than the already aggressive expectations (we had expected a 200-300bp hike in the overnight rate - more or less in line with the consensus expectations).
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