Markets Awaken to Geopolitical Risks as Turkey Drifts Away from the West

Emerging Market Economist, Emerginomics

Tatiana Orlova

Emerging Market Economist

Emerginomics

Thematic (Sector/Industry)

<div class="content-highlight">
<p>On 13 September, the Turkish central bank raised its policy rate by whopping 625bps, exceeding the market's median forecast by 300bps. This is likely to impress the markets, but not President Erdogan whose executive powers were broadened after the June election to include a mandate to appoint and dismiss central bankers. </p>
<p>It is tempting to say that the CBT has passed the independence test; however, by opting for a hike of such magnitude, it may have put its independence to another test. The market mood may flag if policymakers pay for with their jobs for this bold move.</p>
<p>Even if no replacements at the helm of CBT occur in the coming weeks, it is too early to rejoice: the crisis is far from contained. The threat of a hard landing is looming over the economy and the government needs to act fast to develop new anti-crisis policies. In the absence of external support, further downgrades to sovereign ratings remain likely.</p>
</div>


On 13 September, the Turkish central bank raised its policy rate by whopping 625bps, exceeding the market's median forecast by 300bps. This is likely to impress the markets, but not President Erdogan whose executive powers were broadened after the June election to include a mandate to appoint and dismiss central bankers. 
It is tempting to say that the CBT has passed the independence test; however, by opting for a hike of such magnitude, it may have put its independence to another test. The market mood may flag if policymakers pay for with their jobs for this bold move.
Even if no replacements at the helm of CBT occur in the coming weeks, it is too early to rejoice: the crisis is far from contained. The threat of a hard landing is looming over the economy and the government needs to act fast to develop new anti-crisis policies. In the absence of external support, further downgrades to sovereign ratings remain likely.


CBT Opts for 625bp Rate Hike. Now Watch Heads Roll