Market sentiment towards Turkey is quickly evaporating as fears mount over the build-up of external vulnerabilities, high and rising inflation, and growing concerns that the central bank’s independence is being eroded. Paradoxically, political pressure for looser monetary policy increases the chances that the central bank will have to bring forward its next scheduled meeting in June to raise interest rates. We now think that an emergency rate hike, in the order of 200bp, will happen in the next week or so.
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