In Turkey today, the CBT announced in the middle of the morning session that they would conduct an emergency meeting tomorrow which has in turn sparked a (short covering?) rally in the currency.
See attached graph below for intraday move and the trend over last 5 days. As you can see, the announcement reversed the black hole the currency moved into today after the last few days of steady falls.
For now, here is what my friends in Turkey are telling me:
Some believe capital controls might be coming which would not be positive for a country that had been a model of letting its economy float freely despite dependence on western capital flows.
Others are saying a 3ppt hike in rates is needed to send a proper message and also get investors back into the bond market, thus supporting the currency.
The meeting decision will be announced at midnight local time tomorrow evening, which is a little bizarre, but then again, we have come to expect the unorthodox from this central bank.
In the past, their creativity at countering complicated and complex forces facing the economy and the financing of the government has been largely applauded.
With the crisis in confidence in Turkey existing across many levels and the independence of any major governing authority in question, its time to return to standard measures that will lift confidence.
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