President Erdogan has taken his oath as executive president and appointed his cabinet. The most prominent appointment is the one of his son-in-law Berat Albayrak as Treasury and Finance Minister replacing Mr Simsek and Mr Agbal, who are more investor-friendly but have been completely removed from the new cabinet.

President Erdogan has wasted no time in exercising his consolidated power and has issued a decree removing the clause saying that central bank governors are appointed for five years by cabinet decision, thus allowing him to appoint the central bank governor directly.

Even though it is still not clear whether the new rules will affect current governor Cetinkaya, whose mandate ends in 2021, there is little expectation that the central bank will remain independent or that they will hike rates to stop the overheating of the Turkish economy at their next meeting on 24 July.

Erdogan is an opponent of higher interest rates and is unwilling to implement the necessary structural reforms in Turkey, even though inflation of ca 15 percent remains at a 15-year high and above the central bank’s 5 percent target.

Turkey’s 10-year government local-currency bond has reached a record high yield of 17 percent. We don’t expect the central bank to hike rates at its next meeting on 24 July.

Any opinions expressed here are the author’s own.

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