Fitch issues commentary on Turkey interest rate increases; could lower the vulnerability in capital flows
- Fitch: By acknowledging the higher premium investors have been demanding to hold Turkish financial assets, the move may reduce the sovereigns vulnerability to short-term capital outflows and could ease pressure on the lira and reserves.
Rate increases will dent domestic demand and could renew concerns about an economic hard landing. But the fall in the lira and improved prospects for global economic recovery, particularly in the eurozone, hold out the prospect of higher net exports and a faster current account adjustment (we
estimate the current account deficit exceeded 7% of GDP in 2013).