ANALYSIS: High Bar Set for Erdogan's Economic Reforms

ECONOMIC REFORMS ANAYSIS

Some thoughts on economic reforms ahead of Erdogan's announcement (1200GMT)

• Reforms are primarily predicated on achieving macro stability, while augmenting Turkey's investment climate, employment and growth potential. Addressing core issues such as anchoring price pressure, stabilizing TRY, building FX reserves, and reducing obstacles to foreign economic participation will be key in reasserting a more proactive development path in line with the above objectives.
• Broad scepticism regarding Erdogan's recent Human Rights Action Plan means he will need to reassert some policy credibility, beyond mere window-dressing for the EU/US, and tackle these structural issues within the economy. To Erdogan's slight credit, he has shifted his narrative somewhat – acknowledging the need for "bitter pill" policies in Nov-20 with Agbal's introduction.
• Sell-side has noted a high bar for a positive outcome, with follow-through credibility being a core factor, given years of backsliding and sub-par implementation.
• A risk factor to note ahead of next week's CBRT is the possibility of Erdogan bashing the CBRT's tightening bias today, given recent stickiness in CPI adding weight to his unconventional economic belief that high rates cause inflation. This erodes a great deal of hard-fought credibility from the CBRT as background concerns about Erdogan's historic political influence on the rates trajectory and CBRT autonomy are always mostly baked into fragile Turkish rates expectations.
• Few clues have been given on the extent or nature of the reforms coming today, but implementation credibility and synchronicity with the CBRT's tightening stance will be at the epicentre of the market's reaction function.