The Turkish central bank’s decision to leave interest rates on hold today, rather than cut again, was clearly a response to the latest sell-off in the lira, which has forced President Erdogan to tone down his aggressive demands for the MPC to lower rates. If the lira stabilises, we wouldn’t be surprised to see Mr. Erdogan’s rhetoric heat up again. But the short point is that, despite signs that the economy is struggling, Turkey’s inflation and current account problems limit the scope for significant policy loosening.
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