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Political pressure on Turkey's Central Bank will go on

Friday, February 20, 2015


The CBRT is expected to respond at its regular monthly interest rate-setting meeting to the fall in inflation in January to 7.2%. However, while the nearly 50% slide in oil prices since last June has led to a sharp decline in headline consumer prices, core inflation has been hovering near 9% for the last four months -- significantly above the CBRT's 5% inflation target. Just as importantly, Turkey's currency has fallen to a record low against the dollar, losing 7% over the past month because of the increasing politicisation of Turkish monetary policy and mounting expectations that the US Federal Reserve (Fed) will begin hiking interest rates as early as June, putting Turkish assets under renewed strain.


  • CBRT independence is becoming one of the main focal points for market concern about emerging markets.
  • Heavy reliance on external sources of finance will leave Turkey highly sensitive to resurgent dollar and increased US Treasury yields.
  • Renewed lira weakness is likely to persist in the run-up to elections in June, which could also coincide with rising US interest rates.
  • That would put further pressure on the balance sheets of Turkey's heavily indebted corporate sector.

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