President Erdogan was re-elected and the Erdogan-led People’s Alliance won a simple majority in Parliament.
The macro outlook points to a need to rebalance the economy given that:
(1) the current account deficit has remained on an expansionary path;
(2) total capital flows have remained weak;
(3) there is a major fiscal expansion; and
(4) the extra fiscal burden and the CBT’s supportive stance create further pressure on already elevated inflation.
In this environment, the main policy debate focuses on interest rate policy and whether there will be a return to a more conventional policy setting post-elections.
The appointment of Mehmet Simsek as Minister of Economy and Finance shows an intention to return to conventional economic policies, though it is too early to decide the degree of orthodoxy.
The signals imply that actions will be taken without delay following formation of new economy management.
