All eyes in the Turkish markets have been on the rate decision of the U.S. Federal Reserve (Fed) this week. Eight years after a devastating recession opened an era of loose U.S. monetary policy, the Fed was expected to raise rates late Dec. 16 for the first time since 2006, a sign the world’s largest economy had overcome most of the wounds sustained in the global financial crisis.
Turkey’s main stock exchange Borsa Istanbul had a positive start with reactionary buying after three days of harsh selling on Dec. 16. Blue chips led the way up as the index tested 71,500 levels without facing any major profit taking activity.
The Turkish Lira has fallen in value, reaching 2.96 liras to the dollar this week, partly due to troublesome economic news from South Africa as well as domestic tensions in Turkey.
Economists have long expressed concern about the effect of the rate hike on emerging markets, including Turkey, fearing an outflow of funds back to the U.S. after the rate increase.
“The fact is, we just don’t know what the effect will be,” said Attila Yeşilada, an economist with Global Source Partners in Istanbul during an interview with Anadolu Agency on Dec. 15.
It is possible that markets have priced in the rate hike, he said, but it is also possible that some emerging market currencies will fall sharply against the U.S. currency.
Deputy Prime Minister Mehmet Şimşek said Turkey has prepared itself for the worst in a televised interview on Dec. 16.
“The Fed’s rate hike is highly expected…Our Central Bank said earlier that it would simplify its policies, which is of great importance. We have based all of our calculations on the harshest conditions and taken the required measures. Our reform agenda set upon aEuropean Union anchor is quite robust. Our public finances are also in good position. Our Central Bank has already announced a detailed road map. We’ll follow a more predictable and transparent way,” Şimşek said on Bloomberg HT.