The fresh currency turbulence in Turkey saw the price of the US dollar rise about 11% in two weeks earlier this month. But rather than hiking interest rates against the sharp fall of the Turkish lira, the central bank decided Aug. 20 to continue curbing the liquidity it provides to banks. In other words, instead of directly raising rates, the central bank has passed the buck to banks, forcing them to sell foreign currency and increase yields on deposits to secure the liquidity they need. Inevitably, banks have hiked rates on loans as well, as a result of which the credit-driven economic warm-up since June is giving way to a cooling period. Yet another problem exacerbated by rising foreign exchange prices needs to be dealt with, namely the rollover of a bulky external debt.

Written by Mustafa Sönmez