Steering Turkey towards a sustainable economic path will require a sharp rise in borrowing costs and a further lira depreciation, with the country’s foreign currency war chest “dangerously” depleted by unorthodox policies and at least $23bn used to prop up the lira before May’s election.
The financial leadership drafted in by Recep Tayyip Erdoğan since his re-election last month, led by recently appointed finance minister Mehmet Şimşek and new central bank governor Hafize Gaye Erkan, faces mounting challenges as they seek to pull the $900bn economy away from the brink.
There are expectations that interest rates will have to rise sharply, starting next week when the monetary policy committee meets with Erkan at the helm for the first time. This would reverse the low-rate policy pushed by Erdoğan, which is blamed for a severe cost of living crisis.