Turkish central bank shoots itself in the foot

In spite of the recent sharp fall in the lira, high inflation and rising inflation expectations, the Turkish central bank (CBRT) caved in to pressure from the government and resisted hiking interest rates. As a result, the lira is likely to stay under pressure and the credibility of the Bank will be called into question. The irony is that, by refraining from hiking rates now, the CBRT could be forced to tighten monetary policy more aggressively further down the line. Elsewhere, the Hungarian National Bank cut its policy rate for the 18^th consecutive time today and it looks like one or two more rate cuts could be in the pipeline.