Turkey’s Economic Brief – 27.01.2017

1. Developments on the Turkish Lira

The volatility of the Turkish Lira continued this week, currently it stands at 3.87 to the USD as we await the investment outlook from Fitch Credit Rating Agency which will be released later in the day. The Central Bank of Turkey with their meeting on Tuesday this week refused to increase the interest rates. The upper limit of the interest rate was increased 75 base points from 8.50 to 9.25% however, it has had no impact on the strengthening of the Lira. The central bank is tightening the monetary policy and will continue to tighten it. The volatility of the Lira is set to continue as the Fitch rating is predicted to come out negative for the Turkish market. The lira may further lose value in the coming weeks.

In addition to the decline of the lira, a significant increase is expected in the inflation rates of Turkey. Especially in the food sector, there is high price volatility. The inflation is already visible as food prices have increased since the beginning of the year.

2.Turkey’s Constitutional Referendum

• The prime minister’s office and the cabinet will be abolished
• The president will become the head of the executive branch and will be allowed to issue decrees
• The president will be allowed to retain ties to a political party
• The presidential and parliamentary polls will take place simultaneously, every five years
• The parliament will lose its right to interpellation
  • Interpellation is the formal right of a parliament to submit questions to the government asking it to explain an act or policy, thus allowing the parliament to supervise the government’s activities
• The president will have criminal liability
• The president will have broad authority over the high council of judges and prosecutors

The Referendum will be held in a few months, most likely in April of this year. A Majority will be required in the public referendum to make the said changes to the constitution.  Something interesting is that the Objective Research Center, an Ankara-based research center, has found that 60% of the people will vote in favor of the new constitution. The research included 2,340 participants from 36 provinces in Turkey.

Many laws will not have long parliamentary process which will make it easier and faster for decision making as well as actions.