Wednesday, January 29, 2014

Turkey’s Central Bank Boosts One-week Repo Rate to 10% from 4.5%

Big moves in Turkey's exchange rate tonight.

Well for those nerds like us staying up watching emergency central bank moves, tonight was a big night. Turkey’s central bank in an act of panic has jumped their one-week repo rate to 10% from 4.5%. The overnight lending rate is now 8% up from 3.5%.

Here’s the FX market’s knee jerk reaction.

This will likely only help stabilize markets temporarily before the depreciation of the Lira continues. Realistically with the external debt financing needs of Turkey which are estimated at over $200 billion (500% of net FX reserves), there is no way they can handle the increased level of interest on their debt. We estimate that any rate on their 10yr debt over 8% will send them into a negative feedback loop.

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