A tale of two halves

Tatha Ghose, economist, Commerzbank

The Central Bank of Turkey (CBRT) strongly asserted its independence despite President Recep Tayyip Erdogan criticising the bank again and demanding lower interest rates – this was a positive signal from the Central Bank. In our preview for the decision, we expected a more positive scenario: CBRT hikes by a large step and this is taken to mean that Erdogan had signed on to a comprehensive monetary tightening exercise. This would have been enough to produce a sizeable rally. But such an unqualified positive scenario did not materialize – only half of it did. Now it is a story of two halves: the Turkish Central Bank has done its bit – it has asserted independence and hiked rates. Now we have to wait for the secondhalf – the presence of minister

Berat Albayrak as head of economic policy obviously does not stop Erdogan from openly contradicting and criticizing. How will Erdogan respond in coming months? Will the CBRT be able to, or more importantly, willing to assert this kind of independence repeatedly until the real interest rate stays at a high positive level given that the CBRT never chose to do this in all the years when Erdogan’s powers were limited? After today, we are slightly more optimistic than before, but unfortunately, the lira’s prospect will depend mainly on the answer to this question.

(September 13)