Turkey on June 22 underwhelmed the markets with a smaller-than-expected rate hike.

Market expectations were that the central bank would take the benchmark from 8.5% to something between 15% to 25%, with many analysts confidently predicting at least somewhere near the upper end of that range. As things turned out, the regulator squeaked in at 15%. And, in the early hours of June 23, the lira crossed the 25/$ threshold for the first time ever.

In an effort at extricating Turkey from its wretched economic crisis marked by the destruction of the country's FX reserves, the Erdogan administration’s new economic team are attempting to bring in hot money. They need portfolio inflows from abroad—and fast. But the monetary policy they have so far adopted is gradual. Real interest rates are still deeply negative, with official inflation at a tad under 40% (and unofficial inflation perhaps at 110%).

Of course, a huge rate hike might help in the effort to pull down inflation, but it would hit many Turks hard. And of those many, many are already on the canvas. But relying on hot capital means tempting investors back into Turkey. There lies the rub.

It’s “a difficult circle to square”, Ozge Zihnioglu, senior politics lecturer at the University of Liverpool, told the BBC, adding that Turkish President Recep Tayyip Erdogan "has to do something for the economy, but a clear shift to orthodox economic policies would hit a large section of society and he wouldn't want to have that impact on local elections [due in 2024]".

Emerging markets specialist at BlueBay Asset Management Timothy Ash warned ahead of the rates decision that if new central bank governor Hafize Gaye Erkan did not "front-load rate hikes", she risked "always playing catch-up with the market and waiting in the ante-room of the presidential palace to plead for rate hikes [from Erdogan]".

After the rates decision was announced, Ash commented: "Ouch – disappointing. Not enough. They needed to front load hikes. Market won’t like that. I thought they would have learned from the Cetinkaya period." Murat Cetinkaya was central bank governor for three years to mid-2019.

“Today’s decision is insufficient to offset the weakening of the lira, and hence upwards risks in inflationary pressures are more likely to materialise,” Selva Demiralp, a professor of economics at Koc University in Istanbul, told the Guardian, adding. “This is because the real policy rate is still significantly negative even after today’s rate hike.”

Added Demiralp: “It looks like the central bank and the new economic team are allowed a rather limited room to manoeuvre, which is insufficient to offset inflationary pressures. I don’t consider today’s hike as a signal of a U-turn from unorthodox policies that were pursued before the elections. It sounds more like a temporary detour. I expect the pressures on the exchange rate to continue, and likely exceed 30 lira to the dollar.”

George Dyson, a senior analyst at the consultancy Control Risks, told CNBC that there will be further hikes in order to bring the policy rate up to 20% or higher, but that new Turkish Finance Minister Mehmet Simsek “has to be a little cautious. I’m confident he is worried about inadvertently triggering a debt crisis by slowing the economy too fast.”

He added: “Erdogan has accepted that short-term pain is necessary to redress the economy, and that appearing to empower Simsek will play well with markets. The question will be how long Erdogan will tolerate that pain for, and if and when societal pressure get too much and he wrests back control from Simsek. The temptation will be ever present for Erdogan to intervene [in rates] once again.”

Hamish Kinnear, senior analyst at the risk intelligence company Verisk Maplecroft, took a similar line, speaking to The Associated Press. “For now, Erdogan is happy to cede economic policymaking power to governor Erkan and the new finance minister, Mehmet Simsek, so that Turkey can draw in much-needed foreign investment,” he said.

“But if the likely impacts of orthodox policies, such as slowing economic growth from interest rate hikes, appear to threaten the president’s popularity, he could perform a volte-face and fire the new central bank governor,” added Kinnear.

Jon Harrison, managing director of emerging market strategy at TS Lombard, told Reuters: "It seems many in the market were already prepared for a lower than expected rate hike, so while there was a sharp kneejerk reaction the market seems to have calmed down now.

"I am more worried about the medium-term outlook which is likely to see further lira depreciation. The central bank has promised a gradual approach to tightening, but the high level of inflation and the need to rebuild lost credibility really warrants more robust action."

Erdogan in early 2021 fired central bank governor Naci Agbal just months into his term after he sharply hiked borrowing costs.