Turkey will reduce inflation gradually

Significance

Although the central bank has increased interest rates substantially since June 2023, the effects on economic activity and inflation have been limited. Prices and policy tightening are key to the relative popularity of President Recep Tayyip Erdogan’s administration.

Impacts

• Social inequalities and economic grievances will persist, with risks for vulnerable groups such as casual workers and refugees.
• Foreign policy (for instance on Syrian Kurds or Israel) could be used to distract attention from the economy, worrying Western investors.
• Turkey will be eager to attract foreign direct investment, offering opportunities for investors willing to take risks on the lira.