I might be the luckiest blogger posting about economics around the cyber world. My last post was questioning if Turkish Central Bank has enough foreign exchange reserves or not, I used some metrics to get the question answered such as gross foreign exchange reserves to short-term foreign debt ratio (see it here). The results were clearly not pretty. And we all know that what happened then. Turkish Central Bank could not stop lira depreciating even if it intervened directly and sold around $3.5 billion. That was just what happens when a central bank loses control. Despite the biggest the foreign exchange sell in its history, what we saw was just a further depreciation in lira.
and this morning we saw some headlines…
- TURKEY CENTRAL BANK TO ANNOUNCE DECISION MIDNIGHT TOMORROW
- TURKEY CENTRAL BANK TO HOLD EXTRAORDINARY MEETING TOMORROW
- TURKEY CENTRAL BANK MONETARY POLICY COMMITTEE TO MEET TOMORROW
In the past, shocking interest rates hike decisions were made in the extraordinary meetings held by Turkish Central Bank. Expectations for the hike ranges between 200 and 500 basis points (JP Morgan and UBS expect a 300 bps hike). Considering the inflation expectations, raising rates is what needed to be done even if it is late. This will probably have the effect over time of cooling the economy and bringing down inflation.
Cooling the economy causes some crucial questions to be asked at this stage. So how is Turkey doing? Is it generating enough income to challenge the Fed tapering and able to make the entire emerging markets proud?
One can engineer thousands of pre-indicator for estimating the business cycles in Turkey, and GDP growth as well. This is where I am cutting corners and using the Capacity Utilization data, that of, change in annual percentage determines the 95% of annual real GDP growth.
Hope Turkey will do better than I expected.