Turkey stuns with steep rate hike

[AlphaQuant]

wow massive hikes!! repo rates up >4%

http://www.reuters.com/article/2014/01/2...0E20140128
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(Reuters) - Turkey's central bank stunned investors with a huge hike in interest rates on Wednesday, stirring hopes the drastic action would short-circuit a vicious cycle of selling in emerging markets and revive risk appetite in the developed world.

The bold move even managed to overshadow the U.S. Federal Reserve's meeting at which it is widely expected to trim its asset buying program by another $10 billion a month. <TOP/CEN>

Turkey followed India by tightening policy at a midnight meeting of its central bank, with the stunning hike in the overnight lending rate of 425 basis points taking rates all the way to 12 percent.

[Dividend Warrior]

wow massive hikes!! repo rates up >4%

http://www.reuters.com/article/2014/01/2...0E20140128
**********************

(Reuters) - Turkey's central bank stunned investors with a huge hike in interest rates on Wednesday, stirring hopes the drastic action would short-circuit a vicious cycle of selling in emerging markets and revive risk appetite in the developed world.

The bold move even managed to overshadow the U.S. Federal Reserve's meeting at which it is widely expected to trim its asset buying program by another $10 billion a month. <TOP/CEN>

Turkey followed India by tightening policy at a midnight meeting of its central bank, with the stunning hike in the overnight lending rate of 425 basis points taking rates all the way to 12 percent.

Will other emerging nations follow suit?

[AlphaQuant]

Will other emerging nations follow suit?

so far
argentina has allowed the devaluation
india is hiking rates to fight inflation+curbs on gold imports

typically to fight a falling ccy, u do one of the 3:
1) raise rates (but risk choking off the economy)
2) capital controls (but losing investor confidence)
3) foreign intervention (but lose depleting the FX reserves unless u are the US)

doesn't feel like a full fledge panic yet but feels like a very jittery year ahead ahead of each FOMC. Will be interesting to see how each CB reacts after all the lessons of the AFC 17years ago

[sgd]

I read somewhere before turkey actually has long 2 decade history of hyperinflation or very high inflation up till 2003.

To us 4% rate hike looks extreme but when you consider the rationale and the horrible experience they went thru you can see why they doing this.

[csl123]

Depreciating the lira and hiking rates keeps the uncovered interest parity and makes the assets denominated in lira more attractive. 

However the depreciation of the lira leads to an increase in the price level in lira terms. The depreciation makes imports more expensive and drives up business costs. The original intent of interest rate hike is to maintain uncovered interest parity but the undesirable consequence of rate hike is an increase in financing cost. Prices can rise rapidly and possibly results in hyper inflation.

It might be surprising to some that imposing capital control can have a better effect on price stability.