Erdogan disappointed as CBRT stands pat

Turkey’s central bank (CBRT) left interest rates on hold at 19.00% today and, with inflation likely to remain elevated over the coming months and the economy having bounced back quickly from May’s lockdown, an easing cycle is unlikely to commence until the tail end of 2021.
Jason Tuvey Senior Emerging Markets Economist
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Emerging Europe Economics Weekly

Omicron & tightening cycles, Turkey into the unknown

While a lot is still unknown about the Omicron variant, we don’t think it will prevent central banks from delivering further large interest rate hikes - Poland will be a case in point next week, where we expect a 75bp rate hike. The key exception is Turkey, where the departure of Finance Minister Elvan this week adds to signs that policymakers are not prepared to respond to the recent falls in the lira with an orthodox approach. The currency will remain under pressure and this week’s interventions in the FX market suggest policymakers’ tolerance of a weak lira is being tested. These interventions cannot be sustained and soft capital control may be the next port of call.

3 December 2021

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Turkey & the macro fallout from past “sudden stops”

The history books show that currency crises in other parts of the emerging world in recent decades have resulted in peak-to-trough falls in GDP of around 8% on average and pushed headline inflation up by 25%-pts from its latest trough. The latest crisis in Turkey is likely to result in a downturn that sits towards the milder end of the spectrum and, so long as the lira stabilises, the peak in inflation is likely to be in the region of 25-30% y/y in the next few months.

3 December 2021

Emerging Europe Data Response

Turkey Consumer Prices (Nov.)

The rise in Turkey’s headline inflation rate to 21.3% y/y in November will almost certainly be followed by further chunky increases over the coming months that take it to 25-30% as the effects of the recent currency crises continue to filter through. With no sign that President Erdogan will permit an orthodox policy response in the form of large interest rate hikes, the lira will struggle to recoup its losses and inflation will remain at these very high levels throughout much of the next six-to-nine months.

3 December 2021

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Emerging Europe Data Response

Turkey Industrial Production & Retail Sales (Jun.)

Turkey’s industrial production and retail sales figures for June confirm that the economy bounced back quickly from May’s three-week lockdown. This, coming alongside the further jump in inflation in July, means that the central bank is likely to stand pat at the MPC meeting later today.

12 August 2021

Emerging Europe Data Response

Turkey Consumer Prices (Jul.)

The further jump in Turkey’s headline inflation rate to 19.0% y/y in July is unlikely to trigger an interest rate hike but it will delay the start of an easing cycle until the back end of this year. China slowdown webinar: Join us on Thursday, 5th August for a special webinar assessing the impact of China’s economic slowdown on the global recovery. Neil Shearing will lead a discussion with economists from across our economics and markets services to assess whether investors should brace for fresh volatility with China poised for a structural deceleration. Register here for sessions at 0900 BST/1600 HKT or 1100 ET/1600 BST.

3 August 2021

Emerging Europe Economics Weekly

CBRT dodging inflation duty, Poland’s tax proposals

Turkey’s central bank raised its inflation forecasts this week and Governor Kavcioglu’s comments suggest that policymakers are unlikely to step up to the plate in the fight against inflation. Meanwhile, further details of the “Polish Deal” published this week suggest that policymakers' focus is on increasing demand rather than the economy’s supply potential, increasing the risk of overheating.

30 July 2021
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