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not require vast swathes of the restive part of the population to be subdued with the practices of authoritarian polarisation.
Erdogan urges Turkey’s central bank to stay on path of monetary easing. “This was what needed to be done,” Erdogan—who analysts suspect is essentially dictating policy to the central bank after lately firing its governor and approving a deputy governor as the successor—said on July 25 in Ankara. “Even this cut is not enough. Cuts may continue gradually until year-end,” he added. Erdogan, under political pressure after embarrassing local election defeats across many of Turkey’s cities, appears to be on a drive for economic growth. He is also sticking to his highly unorthodox theory that high interest rates cause rather than restrain inflation. “High rates are the biggest obstacle for Turkey’s economy,” Erdogan added in his remarks on July 25, also saying: “I consider the central bank’s rate decision a vital turning point, we will see inflation going down rapidly. I repeatedly voiced my discomfort with high interest rates for many years but central bank governors did not listen to me back then.” There were some fears that the big interest rate cut would cause a sell-off in Turkish markets, but the Turkish lira strengthened a little and there was a rally in Turkey’s local bond and swap markets. Benign global factors, with easing cycles now expected in the US and Europe, may have helped. Erdogan, however, was cheered by the lack of a sell-off, rhetorically asking what happened after the rate cut. “Did Turkey go bankrupt? Everything collapsed? Markets responded normally.” “Look at Japan, Israel, the US,” Erdogan said. “You do not see these [high] rates. We will lower rates methodically.”
2.4 INSIGHT: Awesome, surreal!
In terms of surrealism in global finance, Turkey must have a fair claim to the lead with the OFFICIAL (yes please, note the upper case letters) inflation data from the country’s TUIK statistical institute currently indicating tempting real returns on Turkish lira (TRY) bonds and the central bank (even quicker nowadays to answer the direct-line phone when the monetary masterminds in the Erdogan administration choose to make a call) almost certainly set to cut its policy rate further across the remainder of the year in the dash for another dose of short-term growth that distracts from the longer-term reckoning. Following the central bank’s inflation outlook release, July 31 saw a Bloomberg story headlined “Lira Bonds May Soar Higher If Turkey Proves Right on Inflation”.
If the pre-condition for higher bond returns is Turkey’s ability to prove right on inflation, it’s in the pocket. Tax hikes may be in town and price hikes may be seen on every street corner, but, don’t you worry, by hook or by crook the TUIK will come up with the goods. However, it falls to the doomsters and gloomsters to remind the reader that the bond returns will, unfortunately, depend more on the ability of the government to keep the lira under control.
The government’s lira bonds returned investors 11% in dollar terms in July, despite strongman Recep Tayyip Erdogan controversially firing central bank Murat Cetinkaya at the beginning of the month by presidential decree and replacing him with one of his deputies, Murat Uysal. The new fella was quick to stress just how wonderfully independent in monetary policy he would be from Erdogan and it was enough to bring tears to one’s eyes to see how the press corps dutifully scribbed that down. The story of Erdogan firing the central bank boss after he put up resistance to ‘Erdoganomic’ easing made for a gory ‘Game of Thrones’ episode in Ankara, while the next episode, featuring the immunity of the local currency from strife in the same month of that firing proved excellent exercise for the eyebrows. At least, back in the normal world surely they’d call that sequence of events suspicious. In second place for returns on emerging market local debt in July was Israel. Okay, it only came up with 3.9%, but it still goes down as another ‘Populistan’ defying the doubters (By Jove, Boris, by Jove!) at a time when there is $14tn worth of negative yielding debt, according to data compiled by Bloomberg. Also on July 31, the
12 TURKEY Country Report August 2019 www.intellinews.com