Turkey tightens modestly but more may be needed

The Turkish central bank made a small adjustment to its liquidity provision today which should lead to a modest rise in market interest rates. However, there's little more that the MPC can now do to tighten policy without raising official interest rates. Given Turkey's widening current account deficit, an unsustainable credit boom and the fact that the US Fed will probably start tapering QE in the next half a year, we wouldn't be surprised to see the CBRT raise the O/N lending rate over the coming months.