Fragile EU-Turkey relations, MNB in a bind

The Turkish central bank's tightening of monetary conditions has helped to stabilise the lira but the further ratcheting up of tensions with the EU and threat of measures beyond sanctions mean that the risks to the currency lie to the downside. Meanwhile, the clear signals from Hungary's central bank this week that there is no room to lower short-term interest rates further mean that fiscal policy will play a more important role in boosting the recovery.