The Turkish central bank announced its first extraordinary meeting since 2011, immediately stemming some of the selling in emerging markets Monday. Erdem Basci, central bank governor, vowed Tuesday to take whatever action was needed to fight inflation and the falling lira, which hit a record low Monday.
"It's very important the central bank get in front of this rout that's going on. I think it's more difficult because of the political situation," said Jens Nordvig, global head of G-10 foreign exchange strategy at Nomura. "We'll see them changing their tune and becoming more traditional."
Basci said Tuesday the bank could tighten in a "lasting way," but he ruled out capital controls. Turkey's problems are complicated by a corruption investigation that has led to the resignation of three ministers in Prime Minister Recep Tayyip Erdogan's government.
Erdogan's government, until recently, was seen as a staunch supporter of free-market stability, and Erdogan was expected to easily take the presidency in an election this year. Erdogan claims a former supporter, Muslim cleric Fethullah Gulen, now in the U.S., is behind the allegations of bribery and money laundering.
Referring to the Turkish central bank, Nordvig said: "They've had low rates for a long time. They need to signal they are willing to do a big one (rate hike) at this meeting to get ahead of it."
Early Tuesday, the Reserve Bank of India surprised markets by raising its bench mark interest rate by 25 basis points to 8 percent to fight inflation. Since September, it has raised its policy repo rate—what banks pay to borrow money from the RBI—by 75 basis points. The once hot Indian economy has been weakened by slower investment and rising inflation.
"You can see investors are much more confident that they are getting ahead of it," said Nordvig of the RBI. "That's a good template for Turkey to follow. They have issues as well that they are starting to deal with, and the market is getting much more comfortable."
Marc Chandler, chief currency strategist at Brown Brothers Harriman, said the Indian rate increase did help. "It's just another piece that helped fit into this stability. I still think it's kind of fragile. People don't have a lot of conviction on the upside," he said.
Chandler said Turkey's central bank could cause more pain if it simply raises rates. "Everybody's looking for 200, 250, 300 basis points of rate hikes. I just think that's the death-knell for the economy, so I'd be more inclined to see them do a smaller rate increase and do something like capital controls. They are counting on hot money."
Nordvig said he believes the markets are consolidating and there are individual countries with issues, not one big emerging market crisis. "I think it's more position liquidation. It doesn't mean we can't wash out a bit further," he said. "When we look at the balance sheet of Turkey relative to other countries, they are more vulnerable. ... It's the same thing in a number of other emerging markets where they've issued debt in their own currency."
"Everyone talks about Argentina, but Argentina is an isolated part of the global economy and it doesn't matter very much," he said. He added that the selling wasn't just in emerging markets—noting, for instance, that the Spanish stock market was off sharply in the rout.
Chandler also pointed to individual cases in the emerging world. "Look at what happened in Ukraine. If this is a few of these locally grown hot spots, so what," he said. "If it's a global emerging markets meltdown like we saw last week, it's a different story. The weekend acted as a circuit breaker. People came back Monday and things did not worsen and they are acting better today."
The selloff started last week when China manufacturing data showed a surprise contraction in activity, sparking a global growth scare. The selling spread to developed countries, and drove the Dow down 3.5 percent last week.
The People's Bank of China made another liquidity injection Tuesday in the country's financial markets.
(Read more: Are emerging markets on brink of another crisis)