Turkey’s central bank may do more to curb market volatility

Turkey’s central bank said it would take additional actions if necessary to ensure the smooth functioning of financial markets, as it assesses its steps to inflation from recent market developments.

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The detention of Istanbul mayor Ekrem Imamoglu, President Tayyip Erdogan’s main political rival, which sparked biggest protests in Turkey in more than a decade last week, had caused strong market volatility and a major market sell-off.

The Monetary Policy Committee (MPC) held an interim meeting to review financial market conditions last week and has implemented measures to support its tight monetary stance, the bank said in a statement.

The bank suspended one-week repo auctions and hiked its overnight lending rate to 46 per cent in the interim meeting.

In a research note, Goldman Sachs said it expected the central bank to raise its policy rate by 350 basis points to show its ability and willingness to implement its disinflation program.

The moves last week effectively raised its average cost of funding by 350 basis points, the Wall Street bank said, and it allowed for more time for internal discussion with other stakeholders prior to raising the main repo rate.