(Bloomberg) -- Derivatives tied to the Turkish lira are signaling growing expectations for tighter monetary conditions. 

The currency’s three-month overnight indexed swap, used to bet on future borrowing costs, rose to 47.50% on Tuesday — extending a move since former New York Federal Reserve economist Fatih Karahan was installed as central bank governor on Saturday after the departure of Hafize Gaye Erkan. The six-month contract showed a similar uptick. 

The moves reflect “bets for a tighter monetary stance via either higher rates or tighter liquidity conditions, or both,” said Alp Serbetli, head of Treasury at ICBC Turkey Securities in Istanbul. “Inflation is stubbornly sticky.”

Turkey’s President Recep Tayyip Erdogan appointed Karahan as the new central bank governor after Erkan’s resignation. Karahan was quick to say that quelling inflation was his priority. That, along with Treasury Minister Mehmet Simsek’s open support throughout the announcement of the central bank changes, has led investment banks and analysts to anticipate further tightening in monetary policy.

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Deutsche Bank’s Christian Wietoska said in a recent note that there’s room for another 250 or even 500 basis points of front-loaded tightening, given stickier inflation pressure in the near-term in combination with the leadership change at the Turkish central bank.

Data on Monday showed Turkish inflation in January increased at the fastest pace since August.

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