Turkish policymakers waiting for “taper” reaction

Having been promised “surprise” measures to shore up the lira by Governor Basci, today’s Turkish rate setting meeting was a non-event. Policymakers appear to be waiting to see how the financial markets react to tomorrow’s FOMC meeting, at which the US Federal Reserve is likely to announce the tapering of its quantitative easing programme. This reaction is highly uncertain, but the bigger picture is that Turkey is one of the most vulnerable EMs to tighter global monetary conditions. This means interest rates may ultimately need to be raised further and the economy is likely to tread a bumpy path.