Turkey is on the frontline of the Iran war: it shares a 530km border with the Islamic republic. The same could be said of the country’s finances. Many investors expect Turkey’s central bank to raise interest rates on Wednesday to fight the inflationary and currency pressures unleashed by the conflict.
A lot is at stake. Over the past two years, Turkey has clawed back its lost reputation for sound economic management, allowing the country’s central bank to cut its policy rate from 50 per cent to 37 per cent. So next week’s meeting is widely seen as a litmus test of its credibility.
JPMorgan expects the central bank to raise the policy rate to 40 per cent. Goldman Sachs also says policy should tighten, arguing this is needed “to prevent a further deterioration in the core trade balance and inflation”. But how it will act is unclear.