The Financial Times, published a report on the difficulties and challenges that the recently appointed Turkish financial team is expected to face.
Guiding Türkiye to a more sustainable economic path will require a sharp increase in borrowing costs and an additional decline in the value of the Turkish currency, with the foreign exchange fund in the country being depleted in a dangerous manner due to unconventional policies, and the spending of at least $23 billion to support Turkish Lira before last May elections.
According to the Financial Times report, “Türkiye new financial and Economic team, led by the recently appointed Finance Minister, Mehmet Şimşek, and the new central bank governor, Hafize Gaye Erkan, who was appointed by Recep Tayyip Erdoğan after his re-election last month, is facing increasing challenges, as it seeks to Pulling the $900 billion economy back from the brink”.
There are expectations that interest rates will need to be raised sharply, starting next week when the Monetary Policy Committee meets with the new central bank governor, Erkan, for the first time.
She added, “This matter would upend Erdoğan’s previous policy regarding the low interest rate, which is blamed for the high cost of living crisis”.
In this context, a senior analyst at the Turkish branch of an international financial group said, “It won’t be easy to achieve the transformation because recent economic policies have created major anomalies… Even if they want to return to traditional policies, these steps may create side effects”.
The report concluded by saying that Erdoğan’s economic program caused severe imbalances and prompted foreign capital to flee, due to his focus on keeping borrowing costs low and defending the lira, despite severe inflation.
Turkish President Recep Tayyip Erdoğan hinted, last Wednesday, that he would allow his new economic team to raise interest rates to combat inflation and to stabilize the exchange rate of the lira, contradicting the unconventional monetary policy he had pursued for a long time.