A summer in purgatory

TURKEY - Forecast 02 May 2025 by Murat Ucer and Atilla Yesilada

The “narrow corridor” of 2025 that we’ve long been referring to, that of a CBRT traveling a tricky path between edgy politics and tenuous investor sentiment, has gotten narrower and more precarious quite a bit sooner than we anticipated.

In this brief update to our previous quarterly/forecast report (of January 26, 2025), which was written amid “epistemic uncertainty” (to steal a funky term from a recent IMF blog), we still stick to a (revised) muddle-through scenario of sorts for the year as a whole. Make no mistake, though: This now requires assuming, rather bravely or naively (depending on one’s viewpoint), that investor sentiment, and therefore the drain on CBRT reserves, will stabilize in the summer months, as the CBRT maintains its tight stance throughout, despite the risk of a political backlash.

The politics author expects political tensions to escalate moderately to significantly over the next several months, which is our base case scenario. However, it is possible for Mr. Bahceli to veto President Erdogan’s plans at some point, guiding him towards genuine peace with Kurdish actors and CHP. The politics section focuses on events that may force Bahceli to intervene.

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