Political Turmoil Impacts Turkey’s Economic Stability
By Libby George
LONDON (Reuters) – Recent political events in Turkey have hindered the country’s efforts to control inflation, impacting both the economy and foreign exchange reserves, according to the European Bank for Reconstruction and Development’s (EBRD) chief economist.
Following the detention of Istanbul mayor and main opposition leader, Ekrem Imamoglu, on March 19, the lira depreciated sharply, leading to market instability that compelled the central bank to implement an unexpected interest rate hike in April. This decision interrupted an easing cycle initiated earlier this year.
Prior to these events, Turkey had been making progress in reducing inflation, as highlighted by EBRD Chief Economist Beata Javorcik. She noted, “This path allowed it to cut interest rates, but recent political events brought turbulence and forced the central bank to reverse direction,” explaining that raising interest rates negatively affects economic performance and investor confidence.
Turkey has faced extremely high inflation in recent years, peaking at 75% in May. In light of the recent turmoil, the EBRD has lowered its economic growth forecast for Turkey this year by 0.2 percentage points to 2.8%, attributing this adjustment to decreased domestic and external demand, alongside tighter-than-anticipated monetary policy.
Before Imamoglu’s detention, Turkey’s bonds and stock market had attracted significant interest from global investors. The appointment of Finance Minister Mehmet Simsek in 2023, recognized as a key figure behind the government’s shift to more orthodox economic policies, had further boosted investor confidence.
Simsek and Osman Cevdet Akcay, the deputy governor of the central bank, are set to speak at the EBRD’s ongoing annual meeting Wednesday morning.
Additionally, the EBRD reported that Turkey’s central bank sold over $40 billion in foreign exchange following Imamoglu’s arrest, reducing net reserves (excluding swaps) from over $60 billion to below $20 billion. Recent data indicated a $6 billion increase in Turkey’s gross reserves, marking the first gain in nearly two months.
Comments (36)
luu
02:49 - 26/05/2025
Good
Davou Mancha Fidelis
21:20 - 25/05/2025
Good
Abdul-Azeez Idris Suleiman
20:13 - 25/05/2025
politics goes hand in hand with economy, hope for good policies
Nwokocha Richard
18:19 - 25/05/2025
That’s great news
Nwokocha Richard
18:19 - 25/05/2025
That’s great news