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Turkish lira rises ahead of expected rate hike

  • 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."
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