Turkish central bank hikes, elections key to rate outlook

The Turkish central bank’s decision to hike its one-week repo rate by 125bp, to 17.75%, is a tentative sign that it is shifting its focus away from simply shoring up the lira and towards tackling high and rising inflation. The key now is whether more orthodox policymaking lasts beyond this month’s election. If President Erdogan emerges victorious and renews his calls for lower interest rates, the lira would sell-off and (ironically) strengthen the case for further rate hikes.