Both the FTSE and the pound are little changed on the day as the markets eagerly await the outcome from a trio of central bank decisions. Policy announcements from the Bank of England, European Central Bank and the Central Reserve Bank of Turkey are all scheduled within an hour of each other this lunchtime in what will likely dominate the day’s trade.
Turkey returns to the fore
The BoE and ECB decisions are often amongst the most prominent on trader’s radars but today the focus is more on the news from the Turkish central bank with the former seen as unlikely to reveal any major policy shifts while the latter is forecast to announce a sizeable increase to its interest rate. The markets were gripped with the latest developments in Turkey last month and should there be disappointment today from the bank’s policy response to the runaway levels of inflation then the repercussions could be much further reaching than in just the Turkish Lira. Analysts are forecasting an increase of anywhere from 100 to 500 basis points in the base rate and a failure to match these could see another run on the Lira.
Erdogan maintains unconventional stance
President Erdogan further extended his reach by taking control of the sovereign wealth fund earlier this week and comments in the last hour that he believes the bank should lower rates reveal no change to his unorthodox monetary policy stance. Conventional financial wisdom dictates that high inflation should be met with an increase, not a decrease, in interest rates and a reluctance to follow this has been the chief cause of the weakness in the lira which has lost more than half of its value against the US dollar this year alone.
The question that everyone wants to know is whether the central bank will go against the president and demonstrate their independence by taking a hawkish approach today or whether they will toe the line and under deliver. Should they follow the latter then not just the Lira could come back under heavy pressure but also other EM currencies such as the South African Rand and Brazilian Real and if the moves large enough also the Euro itself and even global equity markets which .