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In yet another unusual policy move, Turkey’s central bank (CBRT) cut rates again, this time by 100bp to 14% on Thursday. The Lira dropped to a fresh record low of 15.5 after the decision. This is the fourth consecutive rate cut by the CBRT beginning September 2021, from 19% to 14%. The rate cut comes despite inflation in the country standing at over 21% with President Erdogan refusing to budge given his conviction that higher rates worsen inflation. Jason Tuvey, senior emerging markets economist at Capital Economics said, “Today’s move provides further evidence, if any were needed, that macro developments are playing little role in the CBRT’s policy formulation… But President Erdogan has continued to dictate to the heavily-purged CBRT to test out his unorthodox view that lower interest rates are needed to bring inflation down”. The lira has fallen 30% from November alone and is down over 51% YTD. In an effort to compensate for the currency crash, Erdogan announced a 50% increase in the minimum wage to TRY 4,250 ($275) per month for 2022.

Turkey dollar bonds held steady with its 6.125% 2028s at 94.12, yielding 7.23%.

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