Economist Timothy Ash Warns Türkiye: Early Rate Cuts Risk a Hard Landing

At a European Bank for Reconstruction and Development (EBRD) panel held in London, renowned economist Timothy Ash issued a clear warning: Türkiye risks a hard landing if it eases interest rates prematurely amid ongoing efforts to stabilize its economy.

Ash emphasized that while reserve depletion, exchange rate stability, and the dismantling of the FX-protected deposit scheme (KKM) have all pressured the central bank, there’s a misplaced perception that this adjustment has come at no cost.

“No one’s paid the price of normalization yet,” Ash said. “But there is a cost. Without sufficient policy tightening, a hard landing becomes inevitable.”

Inflation Requires Tough, Prolonged Action

Ash noted that while inflation control is possible, it will require sacrificing short-term growth.

“Inflation must be tackled seriously,” he said, “and interest rates need to stay high for an extended period.”

He cautioned that early policy loosening could undo recent progress. In contrast to Central Bank Chief Economist Cevdet Akçay’s optimism that fear of a hard landing reduces its likelihood, Ash remained skeptical. He believes that persistent inflation heightens the risk of macroeconomic imbalance and economic slowdown.

Türkiye Hasn’t Gone Back to Square One

Ash rejected the idea that recent reserve losses and exchange rate pressures mean Türkiye’s economic reforms have failed.

“We’re not back to the beginning,” he said. “Inflation is below 40%, and the policy stance is more rational than before. The key takeaway from recent volatility is not crisis, but the need for rates to stay tight longer.”

Growth May Slow, But Not Stop

In an interview with CNBC-e’s Berfu Güven, Ash predicted a moderate slowdown in the short term but dismissed fears of a complete economic halt. Controlled deceleration, he argued, will aid disinflation and prevent overheating.

“I don’t expect a crash landing, but growth will ease.”

Current Interest Levels Are Appropriate

Ash praised the Central Bank’s latest rate hike, saying it sent a positive signal to markets. While he acknowledged calls for rate cuts from the private sector, he insisted now is not the time to ease.

“The current rate level is adequate. Any hint of loosening now would be premature given how high inflation remains.”

Time to Focus on Productivity, Not Devaluation

Responding to concerns from exporters impacted by the stronger Turkish lira, Ash noted they had benefited from years of currency depreciation and should now shift focus toward long-term competitiveness through investment and productivity.

“Devaluation isn’t a solution. Productivity gains and capital investment are the only sustainable paths to competitiveness.”

Reserves Have Fallen—But Türkiye Isn’t Defenseless

Ash acknowledged that Türkiye’s $50+ billion reserve loss over the past three months has sparked investor concern. However, he stressed that the Central Bank still holds a strong position.

“Even a credit ratings agency I spoke with said reserve levels were higher than expected. Türkiye still has ammunition.”

Currency Under Control, Current Account Manageable

Despite recent volatility, Ash believes the lira’s depreciation is controlled and that the current account deficit remains limited in proportion to GDP. He concluded that as disinflation progresses, the real value of the lira will continue to rise, bolstering economic stability.