CBRT Governor has been dismissed

TURKEY - Report 07 Jul 2019 by Murat Ucer and Atilla Yesilada

CBRT Governor Mr. Murat Cetinkaya’s abrupt and rather arbitrary dismissal speaks volumes about President Erdogan’s intentions going forward, which is the topic of the first essay in the Politics section. While we still give him the benefit of doubt, he seems in no rush to announce ground-breaking policy changes.

The second essay uses Foreign Policy Perceptions Survey of Kadir Has University in Istanbul to decipher what policies Erdogan is mandated by the public to pursue, and vice versa. He doesn’t seem to have a convincing backing to insist on S-400s or a closer alliance with Russia.

S-400s will be delivered this week, with Ankara showing the first signs of concern about American sanctions. These are likely to rain on the country in August, at which time we still expect Erdogan to step back, but he will probably need another currency shock to learn from his mistake.

We also send a heads-up to our audience about Idlib clashes and a potential terror incident in the Hatay province.

The Econ author thinks Governor Cetinkaya’s removal at a point when markets were becoming more constructive on Turkey -- at least in the short-term -- constitutes a classic “policy mistake” with hugely negative implications, but is not a very surprising one, nevertheless.

On the data front, we saw a number of releases for June last week. Manufacturing PMI rebounded somewhat, though remains in contractionary territory; the cash budget showed primary expenditure restraint, which partly reflects the favorable base effect from last June, and the 12-month rolling trade deficit, according to preliminary data, contracted by another $2.5 billion clip, though data is distorted by lesser working days this June versus last. As a reflection of stagnant economic activity, we expect wobbliness in the data to continue, and do not expect a clear trend to emerge any time soon.

A key data release of the upcoming week, aside from May IP data, is May balance of payments, which, we estimate, should yield a current account surplus of some $0.6-0.7 billion (May 2018: $6.2 billion deficit). If true, this would take the 12-month rolling current account deficit substantially lower to around $1.5-$2 billion, from around $8.6 billion in April.

Cosmo, being the contrarian, is relaxed about Governor Cetinkaya’s firing, expecting positive investor sentiment through July. Only Fed delaying rate cuts and the US sanctions becoming certain could derail Turkish assets, in His view.

Now read on...

Register to sample a report