CBRT steps up pace of tightening

Today’s decision by the Central Bank of Turkey to raise bank reserve requirements by a massive 400bp should help to calm market fears that it has fallen behind the curve in the face of booming domestic demand. We expect further increases in reserve requirements over the coming months and think that the benchmark 7-day repo rate will be raised over the second half of the year (albeit by less than the market currently expects). But the key to better balanced growth over the medium term lies in tighter fiscal policy and there is unlikely to be much movement on this front until after the dust settles on June’s elections.