Turkish interest rates: little room for manoeuvre

The Turkish central bank’s (CBRT’s) decision today to lower the upper bound of its interest rate “corridor” suggests that it is increasingly confident of achieving a gradual adjustment in the current account deficit against the backdrop of improving global risk appetite, reflected in the recent strength of the lira. Nonetheless, we think that the scale of the external deficit means that there is little room for manoeuvre and it would be premature to talk of much looser policy ahead.