Turkey’s Midnight Mystery

28th Jan 2014 – ISTANBUL—Never a dull moment for Turkey. If you have not been paying attention, the recent story so far goes like this: Day after day, record low after record low for the currency. Economists push repeatedly for the central bank to raise interest rates. The central bank holds a rates decision… and passes on the opportunity. The currency crumbles again, prompting direct market interventions. That doesn’t work either.

And now… drumroll…The central bank announces that it will hold an extraordinary meeting on Tuesday for the first time in nearly three years. In a statement, the central bank said the monetary policy committee will meet on Tuesday night to evaluate recent developments and take necessary policy measures for price stability. The decision would be published midnight local time (22:00 GMT) on Tuesday. The central bank spokesman declined to comment further. A midnight policy decision? What could be more exciting? And heck, we have even produced a handy guide to Turkish interest rates for you. Markets have taken the announcement of a mysterious midnight meeting as a signal that finally, the central bank could be poised to raise interest rates aggressively. The Turkish lira jumped more than 3% against the dollar, which fell below 2.31 against the lira from the day’s peak just under 2.39.  Turkey’s two-year benchmark bond yields fell 0.49 percentage points to 10.68% after the announcement. Yields fall as prices rise. Turkey’s main BIST-100 index recovered from losses and traded more than 1% higher.

The last time the central bank held at an extraordinary meeting was in August 2011, when the central bank lowered its one-week policy rate by 50 basis points [half a percentage point] and hiked overnight borrowing rate by 350 basis points.  In October 2011, when the currency sank 20% against the dollar to a then-record low, inflation hit double digits for the first time in three years, the central bank sharply raised overnight lending rate by 350 basis points to 12.5%. In June 2006, the central bank hiked its policy rate by 225 basis points.

Continues: http://blogs.wsj.com/moneybeat/2014/01/27/turkeys-midnight-mystery/

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