While many analysts have expressed confidence in the dedication of Turkey's new monetary policymakers to raise rates and cool inflation, some note that ultimately, Erdogan's level of authority over his government means if he wants to abruptly reverse course, he can. 'So this is an attempt to take the country back to a orthodox monetary policy and reduce inflation in the meantime, and get some space to start fixing the macroeconomic problems and roll back some of the policy that has been implemented in the lead-up to the election.' 2021, and obviously high inflation,' Can Selcuki, director at Istanbul-based polling data firm Turkiye Raporu, told CNBC. 'Turkey is currently enduring a lot of macroeconomic vulnerabilities thanks to the low interest rate policy that has been implemented since Sept.

In addition to the lira sitting at its weakest ever level against the dollar, Turkey's current account deficit has widened more than market expectations in recent months and official reserves have been drawn down, declining by more than $8 billion in April alone. After several years of Erdogan exerting heavy control over Turkey's central bank, the president appears willing to let the monetary policymakers have more independence - at least for now.Ī number of policy changes will be necessary to bring Turkey's economy back on track. The architect of Turkey's attempted return to economic orthodoxy is Simsek, the Erdogan-appointed finance minister who previously served as deputy prime minister and finance minister between 20, and is widely respected by investors. It's lost some 80% of its value against the dollar in the last five years, and Turkey has found itself precariously low on foreign currency reserves as it sold billions of dollars in foreign exchange to prop up the lira. The result was a cost-of-living crisis for Turks as the country's currency, the lira, plummeted. Traditional economic orthodoxy holds that rates must be raised to cool inflation, but Erdogan, a self-declared 'enemy' of interest rates who calls the tool 'the mother of all evil,' vocally espoused a strategy of lowering rates instead. Turkey steadily lowered its policy rate from 19% in late 2021 to 8.5% in March as inflation ballooned, breaching 80% in late 2022 and easing to just under 40% in May.

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