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EM by EM #42 China could do with a cold Turkey

While all the hype in EM is about China these days, we are healthy skeptics. We'd like to see Beijing adopt a more structural approach to truly win us over, similar to what they're doing in Turkey
2024-02-07

Trusting Simsek’s stern hand

Last week was far from boring, but just when I thought we’d hit calm waters last Friday, the CBRT had me on edge. Another Governor jumping ship, signaling a return to Erdoganomics? Thankfully, no.

Surprisingly, the markets remained pretty chill, considering everything. Maybe the prepared statement did its job in calming nerves. But it was the quick and ready appointment of Karahan that really threw water on any doubts about the future of the disinflation effort. As the first announcement of his appointment made clear on Sunday:

The main objective and priority for the CBRT is to achieve price stability. Relying on our strong team, we continue our efforts to ensure disinflation. We are determined to maintaining the necessary monetary tightness until inflation falls to levels consistent with our target. We will be watchful of inflation expectations and pricing behavior. We stand ready to act in case of any deterioration in the inflation outlook

The latest leaks from the infamous anonymous sources in the know unveil that disagreements about the policy path were essentially Erkan’s undoing (see here) and perhaps that is why many observers are growing even more optimistic about Turkey- Erkan was starting to lean dovish just as headline inflation figures began to flare up again.

While progress has been made in the past quarters on just about every metric during Erkan’s tenure we are not overly worried given that Karahan has entered the limelight with hawkish messaging- an appointment that underlines that the real head of economic affairs at this point is Mehmet Simsek.

A Simsek dismissal would have panic written all over it but a new US-trained economist taking with a hawkish tilt just as base effects are gone Taking over the CRBT?

We like it and are more keen on the Lira than before Friday

Chart 1: Turkey Inflation Heatmap, Summer base effects gone

While all the hype in EM is about China these days, we are healthy skeptics. We’d like to see Beijing adopt a more structural approach to truly win us over, similar to what they’re doing in Turkey

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