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The Kapali Carsi

Critical Week for the Turkish economy

At first look, the domestic economic agenda looks light this week, with purchasing managers’ indices, preliminary exports and inflation being the main data releases. However, it may end up being the make-or-break week for Turkish assets, and eventually for the economy.

The intro. to my latest Hurriyet Daily News (HDN) column pretty much sums up what the column is about. Anyway, you can read the whole thing at the HDN website, but HINT: It is all about monetary policy.

And since I have not been able to share my columns for the past 2-3 weeks, due to a heavy travel schedule, here are a few of my recent columns on the row between President Recep Tayyip Erdogan and the Central Bank of Turkey to get you up-to-date right away: Right before the last Monetary Policy Committee meeting, I wrote from my hotel in Manchester, where I had gone to watch my beloved Black Eagles against Liverpool (we lost that game, but won the home game, eventually eliminating them on penalties), that it was very difficult to justify the upcoming rate cut.

The Central Bank did indeed cut rates, even more than expected. The Bank argued, rather unconvincingly I should add, that tight policies were having a favorable impact on inflation. Anyway, I explained in my next column why rate cuts would not help the Turkish economy, at least not as much as Erdogan was hoping.

Interestingly enough, Erdogan’s tirades against the Central Bank are getting support not only from his loyal subjects, but also from the least unlikely people.  As I noted at the intro. of an earlier column, two of my readers, who often send me Marxist economics articles, recently wrote to me, arguing that central banks should not be independent. “Governments should control central banks in democracies. That why they are elected. If they screw up, at least they can be unelected,” claimed one. Therefore, I went over the case for central bank independence in the column I wrote on the day of the Liverpool game- which I wrote in a nice B&B in England’s Lake District. It was tough. There was no WiFi in the room because of the thick walls, so I had to wake up at 4 a.m. to write the column on a couch in between the B&B’s pub and its kitchen- the only place with decent WiFi.

Finally, you should not see all this as Erdogan’s obsession with monetary policy. There is that, of course, but there is also much more: I had argued, in a column I wrote before Erdogan hardened his Central Bank rhetoric, that Erdogan’s “taka” (a small sailing boat specific to the eastern Black Sea region of Turkey) was headed for the cliffs. My argument there was that his fight with the Central Bank was not an isolated incident at all: It was part of a ongoing attempt to take over Turkey’s independent economic institutions, which had been responsible for much of the economic stability that followed the 2001 crisis. So that you see all this in perspective…

Anyway, coming back to the latest column: February purchasing managers’ indices (PMIs) for Turkey turned out to be weak today, confirming the slowdown in economic activity. So I would not expect Erdogan to take a step back at all. On the contrary, he is getting more vocal every day. Shortly I had submitted the column on Sunday, I read that he had told journalists on his private plane -obviously, I wasn’t invited:):):)- that Governor Erdem Basci and economy tsar Ali Babacan needed to get their act together

Last but not the least, just a small clarification: In the column, I mentioned that the outcome of the non-farm payrolls on Friday would be crucial for Turkish assets. I’d actually look at wage growth rather than payrolls or unemployment- that is the key figure markets are looking at for the timing of the first Fed hike at the moment.

3 Responses to “Critical Week for the Turkish economy”

Foster LeoMarch 5th, 2015 at 8:30 pm

An interesting article thank you. So with thefigures for Continuing Jobless Claims for Feb down today, how do you see this playing out for Turkey and the Lira in particular at tomorrows NFP announcement?

Emre Deliveli edeliveliMarch 6th, 2015 at 7:28 am

Let me address that in a post this morning, but I feel at this point the lira will swing more than other EM currencies in either direction after the NFP- but the key will be, IMHO, Mar. 17-18 Fed meeting…

koylugozeliMarch 8th, 2015 at 3:31 pm

Good post. Thanks for the contribution. How do you think QE in europe will impact capital outflows from Turkey? Do you think the Lira will maintain more of a stability against the euro? Also since Turkey mostly trades with europe will this be a cushion against the USD spike?