Weekly Tracker: April 17-23

TURKEY - Report 17 Apr 2016 by Murat Ucer and Atilla Yesilada

Turkey’s smaller opposition parties, HDP and MHP, are in disarray. The pro-Kurdish rights HDP is facing the threat of several of its members being excommunicated from the Grand Assembly, if a controversial amendment to the Constitution restricting parliamentary immunities passes. The leader of the nationalist MHP, Mr. Bahceli, is battling the courts to avoid an extraordinary convention, where his post will be contested. We believe AKP has let its plans for a new Constitution and the subsequent referendum vote simmer, until the dust settles on the opposition.
In Syria, Turkey’s proxies are doing well in the Aleppo area, but they are losing to ISIS along the Turkish border, which could trigger a new flood of refugees, terror attacks by the fundamentalist terror organization, or Syrian Kurds moving in to fill the void.
Ankara is initiating shy gestures to make peace with Israel, Russia and Egypt, but with the exception of Israel, these attempts are unlikely to bear fruit in the absence of significant policy changes. At the Western Front, the number of boat people arriving in Greece is down significantly, but relations with the EU are deteriorating sharply for several reasons. We simply can’t see Ankara making much headway in accession in 2016.
Under the chairmanship of the new CBRT Governor Mr. Cetinkaya, the MPC is likely to give what the markets are asking this week: a 50 bps cut of the O/N lending rate, with more cuts to come. We also see this as the most likely outcome, without ruling out a deeper and riskier reduction.
Central government budget performed well during the first quarter of the year, but underlying trends point to weakness ahead, while there was little new in the February BOP data, with the current account deficit continuing to shrink and the financing side remaining generally weak.
Cosmo predicts that Turkish markets at a crossroads, where the new CBRT Governor will pick the path to be traveled. Cosmo thinks that Mr. Cetinkaya will turn out to be a “moderate”, helping the positive market performance.

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