Turkey's central bank, which raised its lending rate further at this month's meeting, will likely remain in the tightening mode as far as the pressure on its currency continues, Capital Economics Emerging Markets Economist William Jackson said.

Following this month's monetary meeting, the central bank announced additional tightening measures to shore up the fast-depreciating lira, highlighting the fact that the country is one of the most exposed emerging market economies to deteriorating investor sentiment.

Capital Economics observed that the effectiveness of these measures in strengthening the currency, which continued the downtrend even after the announcement, will be limited as the bank's ability to intervene in the foreign exchange market will be constrained by its muted reserve coverage and the country is highly vulnerable to deteriorating investor sentiment.

According to the economist, the monetary policy council's decision to "continue additional monetary policy tightening every day until further notice" suggests that the bank will have to borrow by way of its overnight lending facility rather than providing liquidity through the benchmark one-week repo facility.

Borrowing via the lending facility, which carries a higher interest rate, would cause market interest rates to rise and could help shore up capital inflows, the economist noted.

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