Eoin Treacy's view -
Policy makers left Turkey's key interest rate unchanged at 17.75 percent when they met last month, compared with economists' forecasts for an increase to 18.75 percent.
With inflation running at 15.85 percent, that leaves the real interest rate below 2 percent -- an inadequate response to consumer prices accelerating at three times the central bank's target rate.
The stakes are high. Turkey's domestic institutions have more than $40 billion of dollar- and euro-denominated bonds and loans maturing by 2020, according to data compiled by Bloomberg Intelligence. Every lurch lower in the lira makes servicing those debts more expensive.
Meantime, foreign banks have exposure to Turkey worth about $224 billion, according to data from the Bank for International Settlements. If the U.S. imposes economic sanctions in retaliation for Turkey's refusal to free American pastor Andrew Brunson, arrested almost two years ago and accused of supporting terrorism, they may be forced to cut those exposures.
Turkey had, at least until recently a GDP of $850 billion, but its total of external debts has been trending higher for years and now sits at $467 billion. That’s an external debt to GDP ratio of 55% which is before domestic debts are considered.
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