Turkey’s economy is in trouble … sharp fluctuations in the lira...

Goldman Sachs said, “The risk of the Turkish currency being exposed to sharp fluctuations and policymakers being forced to raise interest rates further has increased, after the central bank kept its benchmark rate unchanged yesterday.”
“We believe that the risks of a sharp decline have increased following the decision,” said Murat Onur, an analyst at Goldman, referring to a possible scenario in which the central bank would delay tightening monetary policy, leading to more currency fluctuations and hence higher interest rates and a contraction in demand.
Goldman said, “The levels of the current account deficit and the payment of private sector debt indicate the continued displacement of money from the economy,” adding that “this puts pressure on the currency and foreign exchange reserves.”
“Policymakers will have to address these issues,” Onur added. “We still see that the interest will rise to 17 percent by the end of the year, but the timing will ultimately be dictated by the performance of the Turkish lira.”
Yesterday, the Turkish central bank kept interest rates unchanged at 10.25 percent, which was contrary to speculation of a large increase.
A poll of 17 economists expected that the bank would raise the repo rate for a week of 175 basis points, as forecasts ranged between increases of 100 basis points and 300 basis points.
The bank last month surprised the markets by raising rates by 200 basis points, tightening policy for the first time in two years as it sought to curb inflation.
The Turkish currency has lost about 24 percent of its value this year, due to dwindling foreign exchange reserves and the massive interference of the state in the currency market.