LONDON With the Turkish lira off record lows and central bank borrowing costs at the highest in five years, this week was perhaps a good time for Governor Murat Cetinkaya to convince London's fund managers he is up to the job.
After the lira's worst January in almost a quarter of a century, investors have cut exposure to local assets, fearing the central bank was incapable of tackling an inflation upsurge.
But Cetinkaya, in a presentation at JPMorgan's London offices on Thursday, was able to point to the central bank's weighted average cost of funding CBTWACF= as proof the bank is serious about inflation-targeting.
The rate that the bank currently appears to use as the main gauge for borrowing costs in the economy is at 10.38 percent, up more than 200 basis points since the start of the year.
People familiar with the matter told Reuters this week rates would stay at those levels until inflation peaked.
In London, Cetinkaya confirmed that message, telling his audience of money managers he intended to keep rates around current levels as long as needed, to meet inflation targets and stabilise the lira.
Fund managers who attended said they came away not entirely convinced. But they had some sympathy for Cetinkaya, who must balance controlling inflation - currently over 9 percent - with President Tayyip Erdogan's constant demands for lower interest rates.
"They're trying to make everyone happy with this framework. That's the challenge," said Claudia Calich, head of emerging debt at M&G Investments, who attended the event.
Like most investors, Calich has a lower exposure to Turkish debt than its weight in bond indexes, due to concerns over central bank independence, a fragile lira and a monetary policy clouded by a multitude of rates.
At the central bank's last meeting it kept benchmark policy rates unchanged at 8 percent. But it tightened policy by raising overnight lending rates and upped rates on a liquidity window - a lira funding source for banks - to 11 percent.
For the time being that may be enough. Societe Generale analysts, for instance, advised clients to buy lira, noting that the central bank's "explicit acknowledgment of accumulating inflationary pressures and expressed commitment to fighting inflation" had steadied the currency.
The lira is some 7 percent off record lows, helped by the dollar's retreat in recent days.
"(Cetinkaya) mentioned that additional tightening could be a possibility if need be. But would they do it pro-actively or would the currency need to go under pressure again?" Calich added.
Appointed last April, Cetinkaya had been deputy governor since 2012 but Thursday's meeting was the first with him for many investors, who crowded into a standing room-only meeting.
His lack of formal economics training had made many sceptical about whether he could stand up to Erdogan, whose priority is to accelerate economic growth.
One bond fund manager said a gentle audience question about political pressure on the central bank had been deflected.
"He was as hawkish as he could have credibly been given the constraint he is under," the fund manager said, requesting anonymity.
"He sounded like he knew what the market needed and we knew what constraints the institution operates under," the manager added.
"Nothing I heard today makes me more comfortable for the longer term."
Little was apparently said about simplifying the policy rate framework, other than that being the bank's eventual aim. But some investors said they were concerned about Cetinkaya's references to a "dynamic monetary policy".
"Turkey just needs to tighten monetary policy and hold it for a considerable period of time to ensure inflation begins to moderate. Use of terminology like dynamic implies the tight policy won't be long-lasting," said Tim Ash, senior sovereign strategist at BlueBay.
(Additional reporting by Karin Strohecker; editing by Andrew Roche)