Fresh funds, cooling domestic credit seen good policy mix
Foreign investors eyeing July 27 inflation report
Central bank raised rates 250 points to 17.5 on Thursday

LONDON, July 21 Reuters Turkey has underdelivered on rate hikes for a second month, but foreign investors are as yet unfazed and expect fresh money flows, cooling domestic credit and rising currency reserves to provide some breathing space to the battered emerging market.

Policymakers hiked interest rates by 250 basis points to 17.5 in their second meeting under new Governor Hafize Gaye Erkan on Thursday, continuing to reverse the lowrates policy that had been favoured by President Tayyip Erdogan and promising more tightening and additional measures.

While that leaves the benchmark well short of inflation, which is running at almost 40, the direction of travel is the right one, fund managers and analysts said.

The country should avoid large balance of payments challenges for now, said Nick Eisinger, fund manager for emerging markets fixed income at Vanguard.

It is hard to establish when pressure will arise again, but it might not be for a while.

The country39;s international bond prices clung to multimonth highs, with shorterdated bonds trading just below par.

Investors were betting the government would try to avert a recession ahead of local elections in March, and were reassessing the timing of much needed further rate hikes, said Liam Peach, senior emerging markets economist at Capital…