Talking Turkey

With Turkey's central bankers being shown the door, foreign investors are likely to follow.

A decade ago, Turkey was among the fastest-growing economies in the G20, one of the MIST nations (Mexico, Indonesia, South Korea and Turkey) tipped to be the next tier of exciting emerging markets. Even though Turkey remains one of the world’s top 20 economies, it has failed to live up to the hype and is now counted amongst the most vulnerable economies in the world.

Turkey, located on the cusp of the Western and Eastern worlds, has faced multiple external challenges in the last decade. These have ranged from fallout related to the Eurozone debt crisis to wars in neighboring states and the resultant migrant influx. But Turkey’s economic problems are very much homemade. The ongoing game of musical chairs at Turkey’s central bank (the CBRT) has been at the center of a currency rout since 2018.

Three central bank governors have lost their jobs in less than three years for failure to comply with President Erdogan’s view that high interest rates cause inflation, rather than acting as a remedy. Three senior CBRT officials were sacked earlier this month to remove resistance.

Other emerging market central banks are tightening monetary policy to deal with inflationary pressures. The Turkish central bank, despite an inflation rate that is four times its target, bucked this trend and decided to cut interest rates by 200 basis points this week. The move has only cemented concerns over Erdogan’s influence on the bank.