Improved EM currency practices make Turkey an outlier

Significance

The central bank depleted its foreign-exchange reserves and enticed savers to switch to lira deposits to stabilise the currency. Rising interest rates globally, after two years of further debt accumulation, has prompted concerns that other emerging markets (EMs) could suffer like Turkey.

Impacts

• Futures markets see three US interest rate rises in 2022, which will pressure fragile EMs, especially ones with large dollar debts.
• The 2020 global recession caused more permanent scarring in EMs than in advanced markets; many EMs emerged with weaker macro fundamentals.
• Turkey will likely find itself in need of an externally assisted stabilisation programme for the economy.