Atilla Yesilada video: Turkey’s inflation armageddon and currency crisis
trade off
September CPI print was a complete shock to policy-makers, deserving the expression of armageddon. Monthly CPI soared past 3%, while first time since May 2024, annual rate began to rise over 33%. The figure refutes claims by Erdogan, Simsek and CBRT that with some patience the battle over inflation will be won decisively.
As CBRT had already starting an easing cycle and MTEM reveals no tightening in fiscal policy these claims lack merit. It alsop puts CBRT in a tough position to demosntrate its credbility. If it cuts further, lower rates could stimulate domestic demand. If it raises rates once again, Erdogan might frown on monetary policy. What will CBRT do?
CBRT is also committed to strong TL policy, which becomes very problematic when inflation constantly overshoots targets. Yet, abandoning it will trigger immediate dollarization and devaluation. Is TL headed for another crisis?
