© Reuters. FILE PHOTO: The headquarters of the Central Bank of Turkey in Ankara, Turkey on January 24, 2014 file photo. Photograph: Umit Bektas/Reuters
LONDON (Reuters) – Turkey’s new central bank governor Hafiz Cey Erkan hiked interest rate less than expected at its first interest rate meeting on Thursday, sending a sharp drop in the country’s dollar-denominated lira and sovereign bonds.
The bank raised its main interest rate by 650 basis points, to 15 percent, compared to an average of 21 percent expected in a Reuters poll.
Here are the analysts’ comments:
Piotr Mattis, Senior Forex Analyst, Touch Capital Markets
“Many market participants are likely to interpret today’s decision as an indication that Governor Erkan has limited room for maneuver in restoring faith in monetary policy.”
“One could argue that it will take some time to restore shattered confidence, but it would be better to exceed expectations if Governor Erkan wants to convince investors that she is in charge of monetary policy and not President Erdogan.”
Peter Kessler, EM Portfolio Manager, Three Capitals
“It’s kind of disappointing because they telegram 16%-18% so I would have thought it would be in that kind of range.”
“And on the other hand, they promise more tightening in the future…so you have to give them the benefit of the doubt.”
“It would have been better if it was a little higher but it’s going in the right direction.”
John Harrison, Managing Director, Emerging Market Macro Strategy, TS LOMBARD
“It appears that many in the market were already prepared for a lower-than-expected rate hike, so while there was a sharp knee-jerk reaction, the market appears to have calmed down now.”
“I am more concerned about the medium term outlook which is likely to see further lira depreciation. The central bank has promised a gradual approach to tightening, but the high level of inflation and the need to rebuild lost credibility really calls for more aggressive action.”
Tim Ash, Senior Middle East Strategist, BlueBay Asset Management
“Oh – disappointing. Not enough. They needed to be more front-loaded. The market wouldn’t like it. I thought they would have learned from the Cetinkaya tenure.”