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“Lira-isation” policies are no cure for Turkey’s problems

Policymakers in Turkey have doubled down on their new economic model of “lira-isation” by pursuing more extreme de-dollarisation policies in recent months. These appear to be having an impact in terms of stemming lira depreciation. But the central bank seems to have misdiagnosed dollarisation as the cause rather than the symptom of Turkey’s inflation problem. It’s hard to see the central bank reducing inflation sustainability in the coming years while real interest rates remain deeply negative.

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