Published On: Wed, Jan 4th, 2017

Turkey will probably raise interest rates

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Turkey LiraIt is only the second trading day of 2017, but the Turkish stocks are already experiencing bad year. The Turkish lira registered the largest decline of all major international currencies after last month inflation reached 8.53%, which is 53 basis points above the key country rate. This negatively affect the profitability of Turkish stocks, which are already placed under pressure because of rising security issues.

The currency depreciation, which started in late September, requires interest rates to rise by at least 200 basis points in order to maintain the real interest rate stable. The rising interest rates should be even greater in order to support the return of the Turkish lira.

The Central Bank of Turkey, which is under government pressure to cut rates to stimulate economic growth, though inflation in the country is more than expected, already raised the upper range of the corridor of the three main interest rates by 25 basis points in November. In the same month it raised the interest rate on one-week refinancing operations by 50 basis points to 8%, for the first time since 2014.

It is possible to have sharp slowdown in inflation in Turkey for January due to introduced last month, raising taxes and excise duties on tobacco and alcoholic products.

The Bank may decide not to take concrete decisions as the price rise was expected, it was expected by the bank size.


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