Turkish central bank beefs up interest rates

LONDON: Turkey's central bank raised interest rates by 625 basis points on Thursday in the face of a spike in inflation and a slump in the lira, saying it was ready to tighten policy further if needed.

Following are early reactions from financial markets to the decision, which boosted the lira and may ease investor concerns about President Tayyip Erdogan's influence on monetary policy.

TIMOTHY ASH, EM SENIOR SOVEREIGN STRATEGIST, BLUEBAY ASSET MANAGEMENT

"Great decision - made all the more difficult by the huge pressure on the CBRT (central bank) from Erdogan. Clearly Erdogan had got the heads-up from the CBRT this morning that they were hiking and his comments this morning were preparing the ground for his base constituency - putting all the blame now on the CBRT. He was saying I don't agree with this, but the CBRT is independent."

"But this was the right decision. The Turks just gave themselves a change - to hold the lira, and rebuild the trust of the market. They can get out of this without the IMF and without resort to capital controls. The re-balancing will be brutal, but with the right policies herein, there is now a way out."

PHOENIX KALEN, DIRECTOR OF EM STRATEGY, SOCIETE GENERALE

"It's substantially higher than we expected. They have switched back to using the one-week repo rate as the main funding rate... This means they have raised the effective funding rate from 19.25 percent to 24 percent... much higher than the 150 basis point move we were expecting.

"The market is very pleased with this outcome and at the same time quite confused. It almost seems like it's a game of good cop, bad cop being played out between the Turkish authorities - with President Erdogan on the one hand still making statements regarding his dislike of interest rates and ... a very sizeable reaction from the central bank in response to the recent inflationary and geopolitical developments."

INAN DEMIR, SENIOR EM ECONOMIST, NOMURA

"I am surprised, like the market. Before the decision I wrote that the central bank should hike by at least 575 basis points... but I did not have a high conviction that this would happen. And then earlier today we heard Erdogan's comments on interest rates which did not help sentiment. But at the end of the day we have a large hike from the central bank which is an important step towards credibility."

"I think (it was enough for the time being) but of course we will be following the inflation developments in the next months. The likelihood is that we will have a further acceleration in inflation ...(and) maybe follow-up hikes could be necessary."