By Stratfor Worldview
The economic growth Turkey’s seen this year is unlikely to be sustainable in the long term, as President Recep Tayyip Erdogan pushes to cut interest rates in ways that further destabilize the country’s already fragile currency and financial situation. Erdogan has been clear in recent statements that he wants to begin easing Turkey’s high-interest rates despite ongoing high inflation in the country, which doesn’t bode well to begin an easing cycle. Currency, balance of payments and debt crises are not imminent, but capital flight and tighter financial market conditions will accelerate trends in that direction.
Erdogan is well known for his unorthodox monetary policy, which embraces easing at all costs to promote economic growth and, in his view, help tame high inflation.
This unorthodox approach has spurred numerous personnel shake-ups at the helm of Turkey’s central bank in recent years, prompting currency outflows by damaging confidence in the bank’s political independence.
A recent small dip in inflation will add fuel to Erdogan’s push to cut interest rates before the central bank is ready to embrace easing. May's inflation numbers show the first slowdown in seven months, halting the record rise for now but still leaving Turkey with some of the highest inflation rates in the world. Annual consumer price index (CPI) inflation went down to 16.6% last month from 17.1% in April. Despite remaining well above Turkey’s official inflation target of 5%, the recent dip — even if temporary — will fuel Erdogan’s calls for lower interest rates, making an interest rate cut more likely in the coming months. The governor of Turkey’s central bank, Sahap Kavcioglu, followed Erdogan’s latest calls for easing with the assertion that “expectations for an early easing of policy...need to disappear.”














