Turkey’s AK Parti and prime minister Recep Tayyip Erdogan declared a victory at the recent local elections, which took place on the 30th March 2014. Although Erdogan was not running for office, the closely watched municipal votes could show how much recent controversies and corruption probes affected the support for him and his ruling party.
Following the victory declared by Erdogan, the financial markets should be relatively relieved for a short time. However, the tension between Erdogan and Islamic scholar Fettullah Gulen has also negatively affected the financial markets. The results of the municipal elections showed that nothing much has changed regarding public opinion and therefore no surprise is expected for the Turkish economy from the political area.
The first round of Turkey’s first presidential elections will be held on the 10th August this year. This may create another challenge for the ruling party and affect the fragile economy of the country.
In the mean time, the Central Bank of Turkey (CBT) held its monetary policy meeting on the 24th April and decided to maintain three main interest rates and continue to stick to a tight monetary policy despite government pressure for a cut. The CBT stated that the Monetary Policy Committee has decided to set the short-term interest rates as follows:
a. Overnight interest rates: The marginal funding rate has been kept at 12%, the interest rate on borrowing facilities provided for primary dealers via repo transactions has been kept at 11.5%, and borrowing rate has been kept at 8%.
b. One-week repo rate has been kept at 10%.
c. Late liquidity window interest rates (between 4pm–5pm): Borrowing rate has been kept at 0%, while lending rate has been reduced from 15% to 13.5%.
Ali Ceylan is a partner at Baspinar & Partners Law Firm. He can be contacted at
[email protected]
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