This year has not been particularly good for Turkish stocks. Especially after the political earthquake surrounding the arrest of Istanbul Mayor Ekrem Imamoglu, their prices have plummeted. Recently, they have managed to recover some of their losses, and the market's hopes are now linked to a possible reduction in the base interest rate. However, experts do not expect anything like this to be announced at the upcoming meeting of the Turkish Central Bank this Thursday. and at the earliest at the end of July, writes the German "Frankfurter Allgemeine Zeitung" (FAO).
How political turmoil affects the economy
In fact, the drop in inflation to 35.4% in May - the lowest level of depreciation in Turkey since the end of 2021 - could be an argument for reducing interest rates. Currently, the base interest rate is 46%. After inflation, which reached 75% in the spring of last year, began to slowly decline, at the end of 2024 the Central Bank also began to ease its high interest rate policy and lowered the base interest rate from 50% to 42.5%.
However, this development quickly ended with the panic reactions of international financial markets after Imamoglu's arrest: the Turkish lira collapsed and the Central Bank had to intervene. The purchases to support the lira cost the foreign exchange reserve tens of billions of dollars, and the main interest rate had to be raised again.
In Turkey itself, this caused mixed reactions, writes the FAC. For an economy groaning under the influence of wage costs and inflation, expensive loans and rising costs were bad news. Since inflation is outpacing the depreciation of the lira, it is difficult to transfer the increase in domestic costs to foreign customers. Against this background, there was talk that the Minister of Economy and Finance Mehmet Simsek could be replaced. Two years ago, President Recep Tayyip Erdogan specifically tasked Şimşek, a respected economist in the financial world, with developing a new economic policy to combat inflation, the German publication recalls.
However, he sees signs of positive development, including steadily falling inflation, prospects for sustainable growth, measures to encourage lending, improved tax collection (473,000 people filed tax returns for the first time), as well as some politically favorable developments. One such is the fact that, after the PKK disbanded, Turkey can redirect some of the funds intended for the fight against terrorism to other activities. The same applies to the fall of the Assad regime in neighboring Syria, which opens up economic opportunities for Turkey to participate in the country's reconstruction.
However, analysts are not optimistic about the future. Janis Hübner of Deka Bank expects a "prolonged phase of domestic political repression" in Turkey, and analysts at BBVA-Garanti list the following risks: the risk of rising food prices, the containment of inflation in the services sector and uncertainty about the fiscal rate. Therefore, inflation at the end of the year may be 31%, which is above the target that the Central Bank is striving for.
Commerzbank's currency expert Tata Ghose does not see how politicians will agree to even stricter austerity in order to bring inflation down to the desired 5 percent. And in this sense, he is skeptical about inflation and the stabilization of the Turkish lira exchange rate, FACS points out.
The current account remains in the red. According to data published at the beginning of this week, by April this year the deficit had already amounted to $20.3 billion - about 50 percent more than in the same period last year. Gosse calls this trend "catastrophic".
The only thing missing: a war between Israel and Iran
However, the World Bank sees Turkey's economic prospects in a more favorable light: it expects gross domestic product to grow by 3.1%, instead of the previously projected 2.6%. One reason for the improvement is Şimşek's "aggressive monetary policy tightening", and another - more favorable global energy prices. The only drawback is that war has broken out between Israel and Iran, which are Turkey's neighbors, FAC also writes.