Atilla Yesilada: Week of Reckoning: Central Bank, CHP Lawsuit, and Stock Market Jitters

Translated by Gemini from Turkish original

I woke up at 4:00 AM on Monday, my head pounding. I immediately started reading the day’s agenda, and frankly, it was rubbish—nothing substantial to sink my teeth into. I was alarmed. Around 5:05 AM, I fired off a tweet: “It’s 5:05 AM, and still no news of an operation. Can’t they find a single culprit to raid in this massive country?”

Sure enough, around 7:00 AM, the General Manager of Divan Hotels, a Koç Holding affiliate, was summoned for questioning as part of the Istanbul Metropolitan Municipality (IMM) corruption investigation. Fortunately, he wasn’t detained. Had he been, the market fears that major corporations were being subjected to the same political pressure as politicians—effectively being brought to heel—would have been confirmed, likely sending the Borsa down to 9,000 points.

The Borsa delivered a spectacular performance today. I could not find a fundamental reason for this surge. Third-quarter earnings are still expected to be mediocre. Perhaps it was fueled by a rumor that the CHP party would not be subjected to “absolute nullity” proceedings, or maybe some foreign fund initiated a high-dose buying spree. Whatever the reason, I guarantee you, the rally has not started. On the contrary, the staggered decline that began after the July peak will continue until the end of the year. I’m not even sure this rally can last the week, which is the whole point of this column.

COMMENTARY: Brace for Impact: Why I’m Sounding the Alarm on the Turkish Economy and Global Bubbles

The Political Crossroads: TCMB and the CHP Court Case

The Central Bank (TCMB) Monetary Policy Committee (MPC) meeting on Thursday and the CHP grand convention lawsuit on Friday are why I’ve dubbed this the “Week of Destiny.”

While the CHP case might still be postponed, I believe an “absolute nullity” decision will be handed down, effectively transferring the party back to Kemal Kılıçdaroğlu. Let me skip ahead slightly: The MPC is expected to deliver a 150 basis point interest rate cut despite the lack of visible improvement in the inflation outlook. However, the clues offered in the MPC minutes regarding the December meeting are far more crucial.

Amid rising political tension, if the TCMB continues its rate cuts in the final month of the year, it will damage its credibility and could cause the economy to severely overheat in the first half of 2026, thanks to the customary New Year price hikes.

The lightning-fast news cycle has already pushed the October 24 CHP convention lawsuit to the background. Perhaps that was President Erdoğan’s goal all along. Let me offer my hesitant answers to the questions of whether a decision will be issued, what it will entail, and what the aftermath might be.

First, the lawsuit could be postponed once again. This case is tied to decisions from many other courts, but the ultimate decision-maker, as always, is Erdoğan. I need to try to interpret his strategy.

Şimşek: “Rising Confidence in Turkish Economy is Encouraging”

The Postponement Scenario: Last week, the court rejected the appeal to move the hearing to a larger hall. However, the justification for the previous postponement—that the “file was incomplete and awaiting documents from other courts (such as the criminal case file)”—could be used again. This might sound like a conspiracy theory, but as the CHP plans winter rallies where Ekrem İmamoğlu will focus on economic solutions alongside political victimhood, it could be a favourable response to Erdoğan’s “come to Ankara and do politics there” invitation. Erdoğan might agree to postpone the case in exchange for a toning down of support for İmamoğlu.

The Absolute Nullity Scenario: Last Thursday, the Istanbul 45th Civil Court of First Instance objected to the CHP’s ordinary provincial convention, a move rejected by the Supreme Election Council (YSK). This tells me that Erdoğan is not stepping back from his plan to render the CHP dysfunctional. Erdoğan could attempt to deal with Mansur Yavaş first, then use the CHP convention lawsuit to achieve this dysfunction. However, I believe it’s more likely he will hand the party back to Kemal Kılıçdaroğlu first before turning his attention to Yavaş. I gather that Kılıçdaroğlu still commands a base and plans to remain in the leadership for the long haul. If he returns to the party leadership, the CHP will waste energy fighting its own internal battles instead of the AKP. In this environment, the removal of Yavaş from his post, combined with Kılıçdaroğlu’s alleged stance of “let the arrested Mayor be acquitted and come back,” would seriously damage the party and mitigate the street reaction to Yavaş’s dismissal.

As I’ve written before: I suspect that before Yavaş is removed, he will be offered the option of remaining independent or running as an independent candidate for the presidency. If the party is returned to Kılıçdaroğlu, whom Yavaş greatly dislikes, it would be easier and more justifiable for Yavaş to leave the party.

The Inflation Conundrum and My Forecast

TCMB Governor Karahan and Finance Minister Şimşek, in their Washington messages, stressed that monetary policy remains tight and the fight against inflation will continue, even if the year-end CPI is likely to finish above 30%. Yet, they stubbornly insist that the recent pickup in September and October is due to seasonal and non-headline factors. Karahan, for instance, believes that financial deepening (conducting commercial transactions through banks) makes domestic demand appear higher than it actually is.

Moreover, the MPC has matched market expectations for rate cuts in the last few meetings. That expectation still sits at 150 basis points, and I foresee another 150 bps cut being announced this time. Unfortunately, inflation realities do not align with the Şimşek–Karahan thesis.

Let’s look at Akbank’s Nowcast: Akbank Economic Research declared a median and average inflation of 2.9% for October, with their own estimate at 2.8%. This suggests the annual inflation rate will stay near the September level of 33.3%, while the TCMB’s August Inflation Report predicted an October midpoint of 30%. Akbank also noted that they will likely revise their year-end forecast up to 32% in the November report.

Data from BETAM suggests that Q3 2025 GDP will grow at a 1.1% quarterly pace, translating to an annual growth rate of 5.3%. This tempo is inflationary and will push the current account deficit higher in the medium term.

The only evidence suggesting a slowdown in domestic demand comes from Bloomberg HT: The Bloomberg HT Consumer Confidence Sub-Index fell by 6.90% in October to 65.54. The propensity to consume sub-index, which gauges the suitability for purchasing durables, cars, and housing, also dropped by 8.69% to 72.53.

I find this data insufficient to conclude that domestic demand has stalled. October housing sales broke a record, with mortgage-backed sales rising 37% year-on-year. In other words, homebuyers believe the real prices are still too low. If interest rates fall further, a new housing bubble, a construction frenzy, and fresh inflationary pressures could emerge.

Nonetheless, joining the market consensus, I expect a 100-150 basis point rate cut. This magnitude wouldn’t entirely shatter the economy’s distorted balances. However, a rate cut in December—before New Year price hikes are finalized, before the political risk premium is accurately measured, and most importantly, before residents’ demand for foreign currency is clarified—could lead to both overheating and increased dollarization.

My core scenario is this: The TCMB will settle for a 100 bps rate cut, and the CHP will be handed over to Kemal Kılıçdaroğlu. On Friday morning, as Borsa bank stocks accelerate into a sell-off, the CHP court decision will be delivered. I predict no drop in the exchange rate and a “who cares” sell-off in the Borsa. This will all be over in a week. If this wonderful nation truly valued its democracy, Erdoğan and Bahçeli would be in the opposition today. We would also forget the Kemal Kılıçdaroğlu plot. Instead, I foresee more corporations being targeted and transferred to the TMSF, making investors wake up in a cold sweat every morning, selling their assets and asking, “Who will they raid this morning?“