Though not as “powerful” as the world’s major central banks like the Federal Reserve and the European Central Bank, the Central Bank of the Republic of Turkey helped to turn the tide of the selloff in emerging markets by putting into effect a major interest rate increase of 4.25% which took overnight lending rate to 12%. That prompted a rally in Asia’s financial markets which analysts believe could help to restore investors’ risk appetite; the Japanese Nikkei rallied 2.2%, the MSCI jumped 1.2% and futures in the S&P500 e-mini rose 0.5%.
As reported at 12:58 p.m. (JST) in Turkey, the AUD/USD was trading up at $0.8803, well off the session low of $0.8783 while the EUR/USD gained 0.2% to trade at $1.3655. The Turkish Lira struck a 5-year high against the U.S. Dollar with the USD/TRY reaching 2.1650, moving well away from this week’s low of 2.39.
Others to Follow Turkey’s Lead?
According to analysts, Turkey’s move was a desperate but bold one, and could be enough to staunch the emergent market selloff in the short term. Analysts believe that other central banks in emerging markets might also take bold steps, and the central bank of South Africa could be next in line. However, one key mitigating factor could be the Federal Reserve’s rate decision with the consensus expecting that the Fed is likely to reduce monthly asset purchases by an additional $10 billion.