Turkish President Recep Tayyip Erdogan has appointed former economy chief Mehmet Simsek as his new finance and finance minister.
Source: World Economic Forum
Turkish President Recep Tayyip Erdogan at the unveiling of his new cabinet appointed former head of economy Mehmet Simsek as his new Minister of Finance and Economy, leading to some optimism that the country will now forge a new economic path.
Simsek was known for his market-friendly policies and subsequently became the country’s deputy prime minister from 2015 to 2018 after serving as Turkey’s finance minister.
Erdogan, whose victory in the 2023 presidential election will extend his reign to a third decade in power, has replaced most of his cabinet except for the health and culture ministers.
Simsek’s creation of a new team in the key economy portfolio would mean he would have “pretty strong control over broader economic policy,” Timothy Ash, senior EM sovereign strategist at BlueBay Asset Management, said in an email. “The Turkish economy has a chance to pull back from the abyss,” he continued.
Goldman Sachs analysts are similarly of the view that the new appointment could bring a greater chance for more orthodox politics.
“We believe the selection of Mehmet Simsk as the new finance and finance minister increases the likelihood that monetary policy will move in a more orthodox direction,” Goldman wrote in a June 3 note.
Turkish monetary policy currently emphasizes the pursuit of growth and export competition rather than taming inflation. Contrary to traditional monetary policy, Erdogan promotes the unconventional view that raising interest rates increases inflation, setting the central bank on a rate-cutting cycle amid soaring inflation.
The Turkish lira has weakened significantly in recent years, partly due to Erdogan’s policies and his influence over the country’s central bank. This decline has deepened since the second round of the presidential election, slide to new lows after Erdogan’s re-appointment.
Turkish President Recep Tayyip Erdogan’s new cabinet in Cankaya Palace.
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Goldman Sachs predicts the currency still has room to weaken further to deeper lows: 28 against the dollar in 12 months, compared with a previous estimate of 22.
“We revise our USD/TRY forecasts higher to 23.00, 25.00 and 28.00 in 3, 6 and 12 months (vs. 19.00, 21.00 and 22.00 previously),” the investment bank’s analysts wrote.
Wolfango Piccoli, co-chairman of research firm Teneo, believes that Simsek’s return will “at best” bring about a partial reconfiguration of Turkey’s current economic policy. Piccoli added that a dramatic turnaround, which would involve a straight conventional monetary policy approach, was unlikely.
“It is also unclear how long Erdogan can tolerate a more pragmatic stance on the economic front,” he said in a June 2 research note. “For Erdogan, Simsek is a ploy he is using until the markets give Turkey some respite.”