YAP – (IMPORTANT) – a cautionary tale at a time of peak political risk for markets

Below is CoPilot’s succinct summary of some recent economic history in Turkey:

When the Turkish government asserted greater control over the Central Bank—particularly under President Erdoğan’s leadership—it triggered a cascade of economic consequences that reshaped the country’s financial landscape:

📉 Unorthodox Monetary Policy

• The government pushed a controversial belief that lower interest rates would reduce inflation, defying conventional economic wisdom.
• Between late 2021 and early 2022, interest rates were slashed from 19% to 14%, despite rising inflation.

💸 Currency Collapse & Inflation Surge

• The Turkish lira plummeted, losing over half its value in months—dropping from 8.30 to over 18.30 per USD.
• Inflation skyrocketed, peaking above 80% by mid-2022, far exceeding the official targets.

🏦 Investor Confidence Eroded

• The central bank’s perceived lack of independence led to capital flight and depleted reserves.
• Political interference—especially after the arrest of opposition figures—further rattled markets.

🔄 Policy Reversal & Lingering Damage

• After the 2023 elections, the government signaled a return to orthodox monetary policy, raising interest rates to 50% by early 2024.
• Despite this, inflation remained stubbornly high at 37.9% as of April 2025, with expectations poorly anchored.

🧮 Manipulation Allegations

• Critics accused the government of manipulating official inflation data to downplay the real cost of living.

In short, Turkey’s experiment with politicized central banking became a cautionary tale: when monetary policy is driven by political goals rather than economic fundamentals, the fallout can be swift and severe.

A repeat in the USA? This week?!