The Turkish lira has strengthened against the dollar ahead of an emergency meeting tonight of the Central Bank of Turkey (CBRT).
Analysts forecast that the bank will hike rates sharply to defend the lira after deciding on inaction at a meeting last week, which sent the the currency spiraling. The lira hit a fresh low against the dollar yesterday but then bounced sharply after the CBRT announced today's meeting.
Nomura strategist Olgay Buyukkayali reckons the bank could increase the marginal funding rate by 200 bps to 9.75% and express a hawkish bias. Standard Bank economist Timothy Ash is calling for a rise of "300 basis points plus, with more to come."
UBS adviser George Magnus believes the CBRT could even announce capital controls.
The USD-TRY is -1% at 2.2597, while the ISE 100 stock index (TUR) is +1%.
Update: Governor Erdem Basci gave a strong indication that the bank will tighten policy tonight when he delivered the bank's quarterly inflation report today.
The bank increased its expectations for year-end inflation to 6.6% from 5.3% vs a goal of 5%.
"The central bank will use all its policy tools to converge inflation to the 5% target," Basci said. "Our aim at tonight's meeting is to avoid a deterioration of pricing behavior and to take steps to ensure price stability." He also said: "We won't refrain from implementing permanent policy tightening if needed."