Turkey's inflation targeting could falter

Significance

Tighter monetary and relatively constrained fiscal policies aim to cut high inflation levels. Nevertheless, slowing economic activity will test President Recep Tayyip Erdogan’s administration’s anti-inflationary resolve, as inflation remains high, cutting household and business spending power and raising the likelihood of protests.

Impacts

• The administration will keep implementing measures to check demand for imports.
• The likely decline in employment may be cushioned by more retirements and/or part-time/flexible working arrangements.
• The domestic housing market will be susceptible to interest rate cuts.
• Turkey will remain a risky, if attractive, market for short-term financial investments.