Turkey's central bank is expected to raise its policy rate sharply on Thursday in a strong signal that re-elected President Tayyip Erdogan has accepted some steps toward economic orthodoxy to address inflation that has soared under his watch.
. But the level remains uncertain as the central bank has not given any signals as to its next steps, including the size or pace of potential hikes.
Given the drawdown in reserves, analysts have warned of a potential balance-of-payments crisis as the country's current account deficit widened to $48.4 billion last year, its highest since 2013, mainly due to soaring energy prices. "However, our clients would typically like to see a substantial tightening very soon – in the area of 15-25% hike at the next meeting," he said.
Erdogan said last week he had approved the policy steps that new Finance Minister Mehmet Simsek, highly regarded by financial markets, will take with the central bank, suggesting he has given theRatings agency Moody's said on Tuesday proof that Turkey has shifted towards more orthodox and predictable economic policymaking would be "unequivocally credit positive".
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