The Turkish central bank’s (CBRT’s) decision to hike its policy rates by 200bp today is a response to the recent lira weakness, and should help to restore the Bank’s battered credibility. The move gives the CBRT more room to tighten monetary conditions through its interest rate ‘corridor’ and we expect that the average cost of central bank liquidity provision will climb to around 12% by year-end (from 10.7% now).
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