TRY Takes Steps towards Policy Orthodoxy amid Inflation Report and New Appointments

TRY: Further moves towards policy orthodoxy

In a further move towards policy orthodoxy, yesterday the Central Bank of Turkey presented its latest inflation report which saw its 2023 inflation forecast double. Our chief economist in Turkey, Muhammet Mercan, wrote a detailed review of this report here. The new inflation forecasts take on board developments in Turkey this year and have generally been received positively by the markets. In addition, three new deputy governors were appointed to the CBT last night – a move we also suspect will be welcomed by the markets.

Clearly, the very high inflation in Turkey will pose many challenges to Turkish asset markets amidst this transition to policy orthodoxy, but this week's developments look consistent with the recent narrowing of Turkey's sovereign risk premium, where the five-year sovereign Credit Default swap dipped from 700bp in May to 430bp this week.