Political and Economic Update
Referendum polls don’t grant much joy to the YES camp. Bizarre events to stoke up conservative-nationalist votes are to be expected, while a cancellation of the referendum can’t be ruled out, either.
As we write these lines, a Turkish minister was declared persona non grata in Netherlands, while other countries were gradually barring AKP politicians from holding rallies in their jurisdiction. This is only one aspect of Turkey’s growing isolation in the world. The Council of Europe and the U.N. are other agencies that are putting pressure on the country to straighten up its act. Rising censure could affect economic and market pressure.
In Syria, all actors have united to stop Turkey’s military operation, Euphrates Shield. Ankara has two choices, namely to accept defeat and reach some type of accord with Syrian Kurds or double up the ante. Referendum polls might force AKP’s hand in making its choice.
Industrial production growth continued in moderate territory in January, but growth was not particularly broad-based, driven by car production, in particular.
Cash budget was alarmingly weak in February, with primary expenditures surging and revenues tanking, the details of which we will see this week, when the Ministry of Finance data is released.
The Monetary Policy Committee will hold another one of those difficult meetings this Thursday, at which the Bank is likely to raise the interest rate on the Late Liquidity Window by 50-100 bps from 11% at present, which is about where the average funding rate also stands, on the back of liquidity tightening of the past few days.
The key data releases of the week are the January balance of payments and the December employment data. We forecast the current account deficit at around $2.5 billion, somewhat lower than the consensus (of around $2.8 billion). If true, the 12-month rolling deficit would widen to $32.9 billion from $32.6 billion in December.
Cosmo declares that the CBRT’s epic battle with Fed normalization had begun last week.Unless Mr. Erdogan repents his theory of higher interest rates causing inflation, this a battle that would inflict major damage to markets.
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