Seeking Alpha

Turkey delivers big rate hike to defend currency

  • The Turkish central bank hikes its overnight lending rate to 12% from 7.75% and the overnight borrowing rate to 8% from 3.5%, in a surprisingly strong move to defend the country's embattled currency and perhaps alleviate the declines in emerging market currencies.
  • Analysts say Turkey's decision is significant since the central bank had come across as reluctant to take action - indeed, it's political independence was not considered a certainty.
  • The turkish lira jumps more than 3% on the move, which has propelled Dow futures sharply higher and should spark a strong open for Asia's equity markets.
  • ETFs: TUR, ARGT.
Comments (20)
  • http://bit.ly/1b2le6L
    28 Jan, 06:26 PM Reply Like
  • Looks like Turkey just made shorty shishkabob
    28 Jan, 07:04 PM Reply Like
  • Love it. Guess the EM crisis will have to wait. Long TUR,other EM's
    28 Jan, 07:25 PM Reply Like
  • I guess you were long on sterling and baht
    28 Jan, 07:45 PM Reply Like
  • How is this positive, business funding cost goes up so this should slow the economy, this is net negative for growth. It helps turkey control inflation and dollar outflow. It appears as act of desperation. This move may close few shops in financial industry I think.

     

    Main media are creating fear so mkt volatility is good for the financial industry and financial media. The revs and profits are on a skid but these do not seem to matter.
    28 Jan, 07:30 PM Reply Like
  • like sl100 says, according to a recent article in the WSJ Econ blog, raising interest rates to combat a currency devaluation is actually wrong, though it's 'standard economic practice'. Studies have found that not defending the currency is actually the best thing to do: shock therapy is less disruptive than the slow death of raising interest rates. So this may end up badly for Turkey.
    28 Jan, 11:48 PM Reply Like
  • You guys need to stop drinking the Krugman koolaid, that stuff is like crack, it seems nice at the time but will destroy your mind.

     

    Defending their currency is the right thing to do. If you step outside WSJ articles you would realize that most people in Turkey do not export and most are not in the financial industry. Nearly 100% of their population though does buy food, pay utilities directly or indirectly, occasionally buy medical care and purchase other necessities needed for daily life. All of those will go up in price dramatically if the currency crashes, which is the same as lowering the standard of living for everyone who has to buy those.. So what is better devaluing the currency and bludgeoning the 95% of regular people or defending it to try and help them? In this world of idiotic currency wars this is a rare example of a nation actually looking out for their people vs looking out for their special interest groups such as financiers. Probably because they know their people will rebel aggressively, but still, the right decision nonetheless.
    29 Jan, 10:31 AM Reply Like
  • The market disagrees with you.
    28 Jan, 07:35 PM Reply Like
  • Hum? I don't understand. Isn't this a desperate attempt to defend its currency? How could this "propel" stock market up? What is going on?
    28 Jan, 08:31 PM Reply Like
  • They are fighting the Fed. It's perceived that the taper will increase the strength of the dollar. A strong dollar weakens other currencies and causes inflation. They are fighting inflation.
    28 Jan, 09:13 PM Reply Like
  • If you don't know I can't help you. Long TUR.
    28 Jan, 08:47 PM Reply Like
  • I can. Inflation is about 7.5%; GDP growth is sub 3%; public debt is low at 35% of GDP and unemployment is 10%. So not your typical crisis scenario. But problem is the net private foreign debt is $200 billion (1/4 of GDP) and the current account deficit is 7%. Without dollars they can't service the debt and more immediately finance the trade deficit. The problem would correct thru a naturally devalued currency but that would drive up inflation (particularly energy) and hurt foreign debtors. Which would further erode the exchange rate and around we go.
    This might work. I think the fear is increasing unemployment and political instability but their good debt position probably gives them some wiggle room if need be. However, you really need to understand their economy if you plan on investing. Headline investing is silly.
    But the bottom line is they can't grow at these interest rates so they need to address the structural issues. Good luck I say. I'll keep my money else where.
    28 Jan, 10:29 PM Reply Like
  • QE caused lots of US dollars to be invested in EM's, Turkey included.
    Talking taper starts an inverse momentum, capital being withdrawn from EM's.
    The problem with EM's is they haven't taken the necessary measures in case this would happen, in other words, no reserves whatsoever.
    If tapering gets on, 2014 is going to be the year of rude awakening for the EM's.
    29 Jan, 12:58 AM Reply Like
  • Yes there are a lot of issues. If there wern't it would not be trading in the low 40's.

     

    This is a long term secular opportunity due to the demographics, strategic location, and closer connection with Europe going forward.
    29 Jan, 07:43 AM Reply Like
  • Good luck financing anything in that country .Could I interest you in a 15% car loan today sir? How bout an 18% mortgage .
    29 Jan, 08:48 AM Reply Like
  • Wow,,, wait... you mean they will actually have to SAVE money first before buying something? That's unreal.... God forbid you cant take out credit, I mean how will life go on?

     

    BTW low interest rates like we have here in the US is a not a help to home buyers, they are a subsidy to the sellers who know all the buyers have access to low rates and can then charge more. I would love to see 18% mortgage rates here. Housing prices would crash like you've never seen and would do more to make home ownership affordable than all the gov policies combined would.
    29 Jan, 10:25 AM Reply Like
  • Get some help
    29 Jan, 10:42 AM Reply Like
  • Turkey is guility of Genocide.
    Does it matter to markets- are markets all that matter?
    29 Jan, 09:06 AM Reply Like
  • Like all the growing EMs from Brazil to Turkey have done last 5 years they have borrowed lots of cheap leveraged paper that won't be worth a hill of beans as Fed keeps tapering and rates rise.
    29 Jan, 09:26 AM Reply Like
  • Perfect, I was worried I wouldn't be able to get in on a nice little dip...... looks like I won't miss out after all. Thanks Turkey.
    29 Jan, 09:28 AM Reply Like
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