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Will Turkey Remain Committed to Economic Reform?

Eight months after the Turkish government embraced economic orthodoxy, the country has begun to enjoy the fruits of normalization. But slower-than-expected progress on curbing inflation might test President Recep Tayyip Erdoğan’s patience, especially because economic conditions will likely get worse before they get better.

ISTANBUL – Eight months after a surprise return to orthodox economic policies, Turkish officials are continuing to signal their commitment to reform. The Central Bank of the Republic of Turkey (CBRT) has raised interest rates by 36.5 percentage points since June, while the government, steered by Finance Minister Mehmet Şimşek, has tightened fiscal policy, notably by increasing indirect taxes and adjusting regulated prices.

Both fiscal and monetary authorities have repeatedly emphasized Turkish President Recep Tayyip Erdoğan’s support for these efforts, seeking to calm fears of an abrupt policy reversal. Remarkably, for the first time ever, Erdoğan himself presented the country’s medium-term economic program in September, vowing to bring inflation down to single digits with the help of “tight monetary policy.”

Equally important, the Turkish economy has begun to enjoy the fruits of normalization. Over the last six months, the risk premium on Turkish government bonds has decreased significantly, from 679 to 280 basis points.