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The much anticipated Turkey Central Bank Decision is out and it is a stunner:
TURKEY'S CENTRAL BANK RAISES OVERNIGHT LENDING RATE TO 12.00% - this is the key rate, and it was at 7.75% until now, so an epic 4.25% increase, far greater than the 2.50% expected.
TURKEY'S CENTRAL BANK RAISES BENCHMARK REPO RATE TO 10.00% - from 4.50%
TURKEY'S CENTRAL BANK RAISES OVERNIGHT BORROWING RATE TO 8.00% from 3.50%
TURKEY CENTRAL BANK SETS PRIMARY DEALER RATE AT 11.5% VS 6.75%
TURKEY CENTRAL BANK RAISES LATE LIQUIDITY WINDOW RATE TO 15%
Turkey has been extremely dependent upon the carry trade which will disappear as the Fed slowly raises interest rates. They badly need to reform their economy and regulatory environment but they've been putting that off for decades.
Turkey may not end up being the only EM issue. Here is more on this. Turkey More Than Doubles Main Interest Rate to Halt Lira Slump
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The bank’s governor, Erdem Basci, is fighting to arrest a currency run that has gained speed as domestic political tensions overlap with global market shifts. A corruption scandal that broke last month has ensnared several cabinet members. It coincided with a flow of money out of emerging economies, weakening currencies from Brazil to South Africa, as the U.S. reduces monetary stimulus.
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Basci’s efforts to cushion the external and internal blows have been constrained by political opposition to raising borrowing costs as growth slows. While most investors advocate higher rates to bolster the lira, Prime Minister Recep Tayyip Erdogan has repeatedly railed against an “interest-rate lobby,” blaming it for a series of blows to his government, including last year’s wave of protests and the graft probe implicating his ministers.
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As the currency’s slide picked up pace last week, Basci intervened directly in markets for the first time in more than two years, selling about $3 billion. That only accelerated the slump, leading the bank to reassemble last night.
The announcement on Jan. 27 of the emergency meeting helped the lira pare losses in the past two days, though stocks and bonds continued to drop.
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Turkey isn’t the only emerging nation to raise borrowing costs this month in response to plunging markets. India unexpectedly increased rates, and Brazil has pushed its benchmark higher for six straight meetings.
“Central banks in emerging markets are moving to stop the sell-off,” RBS said. “We think they will struggle to do so.”
Turkey has been extremely dependent upon the carry trade which will disappear as the Fed slowly raises interest rates. They badly need to reform their economy and regulatory environment but they've been putting that off for decades.
Don't want to sidetrack this thread, but it is your choice to read what you want. I would not agree with this site's assessment of ZH.
If you want to give this site more credibility, also your choice. I get information from many places. People are grownups and don't need to be told what to think. Take the name calling elsewhere.
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Yikes, the USA will be at or near zero for a long, long time.
Well it appears it's about to get a great deal more interesting. We will have to see how well the new RRP tool works out as they taper. Brazil, India, Turkey and S. Africa appeared to have all hiked rates.
Emerging Market Meltdown Resumes
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As South Africa hiked rates this morning (whose effect on the Rand was promptly overwhelmed by the Lira collapsing back to weaker than pre-rate-hike) stock markets around the world are rapidly deteriorating and the safety of bonds and bullion is being sought aggressively. S&P futures are -10 from pre-Turkey; Dow -100; Nikkei -30; and EEM swung from up over 2% to down almost 1% in the pre-open. Treasuries are 6bps tighter than post-Turkey and gold (and silver) are rallying smartly back up to $1268 (+$20 from post-Turkey lows). It would seem EM turmoil is un-fixed. Turkish stocks are collapsing and the Hungarian Forint is collapsing.
Lets be clear people, overnight borrowing, is different than the lending rates.. It literally means overnight borrowing, meaning that I'm borrowing money today, and paying it back tomorrow.
The rates should be higher for overnight than long term. Had it been higher in 2005 on, the economic collapse wouldnt have been anywhere near as severe as it was because financial institutions wouldnt have created debt today, tha was due tomorrow in such large numbers. It would have been spread out over decades, and the economic collapse wouldnt have taken place.
Lets be clear people, overnight borrowing, is different than the lending rates.. It literally means overnight borrowing, meaning that I'm borrowing money today, and paying it back tomorrow.
The rates should be higher for overnight than long term. Had it been higher in 2005 on, the economic collapse wouldnt have been anywhere near as severe as it was because financial institutions wouldnt have created debt today, tha was due tomorrow in such large numbers. It would have been spread out over decades, and the economic collapse wouldnt have taken place.
Turkey appears to have made the biggest changes. It is more complicated than that. The repo markets are a very big matter though. The 2007-2008 popping was attributed to a repo run. Hasn't been corrected however, and looks like corrections maybe on the way. In this economy the consequences are going to be even greater. Volatility has been predicted.
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