Turkish Monetary Policy: Risky Business

Turkish Monetary Policy: Risky Business: "

Stuck between a rock and hard place, the Turkish central
bank (CBT) announced a very creative, but potentially risky policy response to
a problem facing many faster growing emerging markets. Turkey’s strong growth
outperformance has attracted a large inflow of foreign capital, placing upward
pressure on the Turkish lira (TRY) and widening the country’s current account
deficit. At the same time, robust loan growth, driven partly by liquidity-enhancing
foreign capital inflows, worries Turkish policymakers as excessive loan growth
risks creating asset bubbles and disturbing domestic financial stability.

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