We do not view the Lira's rally yesterday as a sign of greater market confidence: it was a typical pause, possibly a clearing of outstanding short positions because authorities are signalling that rate hikes or some combination of policy changes is now imminent.

Indeed, a symbolic interest rate hike on 22 June now looks very likely. The exact magnitude of it will make very little difference. Because its permanence will not be convincing. Other measures to dismantle the various distortive capital controls and FX restrictions may also be announced. 

Beyond the immediate timeframe, we doubt that the market reaction will be too strong, especially if Erdogan keeps reminding markets that he is waiting in the shadows with a skeptical mindset.