Surprising interest rate hike

The Turkish national bank had actually signalled an end to the rate hikes at a key rate of 45%. Even though the continued rise in inflation to well over 60% p.a. was within the central bank projections, it changed course in March and made another interest rate hike to 50%. Anyone who was not surprised by the hike itself was at least surprised by the timing, because the rate change was made around ten days before the local elections that were set for the end of March – an extremely important political contest for President Erdogan.

Opposition clearly wins the local elections

These ended with an unexpectedly high and in some cases landslide victory for the opposition, especially the largest opposition party CHP. It not only defended the mayoral positions in Istanbul, Ankara, Izmir, Antalya, and Adana, but also replaced the AKP/MHP mayor in the automotive industry centre Bursa (President Erdogan’s AKP had not lost there since 2002) and in the neighbouring Balıkesir (MHP). In light of the solid re-election of Istanbul mayor Ekrem Imamoglu, there is a broad consensus that he will run for president in 2028. He opted out of the race last year in light of a threatened political ban, making way for long-time CHP party head – which many consider to be a decisive mistake by the opposition.

New life in a partnership of convenience

The ties between the USA and Turkey are continuing to improve. The USA is signalling willingness to integrate Turkey back into the F-35 fighter jet project. However, it is still setting a condition of Turkey backing out of the purchase of Russian S-400 air-defence systems, a demand that is still unlikely to be met. This rapprochement is primarily pragmatic in nature for both sides, and mistrust remains high for both.

The stock market in Istanbul advanced by a further 1.7% in March (in local currency) and can thus look back at an excellent first quarter. The Istanbul exchange is one of the best this year to date, also in euro terms, because investors are gaining increasing confidence in a return to orthodox monetary policy and the currency has not yet depreciated as significantly as many fear.