Central Bank of Turkey edges back to orthodoxy

The operation of Turkey’s interest rate corridor means that the true extent of monetary tightening announced at last night’s emergency MPC meeting is a little less than the aggressive hike in the benchmark one-week repo rate would otherwise suggest. Nonetheless, the bigger picture is that the central bank seems to have finally accepted the need for tighter policy – in the process defying government pressure to keep rates low. Vulnerabilities remain, but last night’s move should bring some stability to Turkey’s financial markets over the coming weeks.