Expectations from Türkiye's new economic administration

Following the May 14 and 28 elections, President Erdogan, who was re-elected, announced his new cabinet for the upcoming term. In this new period, the president assigned the Ministry of Treasury and Finance to Mehmet Simsek, thus determining who will co-manage the economy. Subsequently, he appointed Hafize Gaye Erkan as the Central Bank Governor. With these appointments, the framework of economic governance is now in place. The next step is the implementation of the policy agenda.

Mehmet Simsek is a familiar name whose policies we are acquainted with. But we can only speculate about the possible policy recommendations of Hafize Gaye Erkan based on her career. Of course, it would be premature to make definitive judgments as they have not yet announced their new policy sets. However, I believe they are working based on Türkiye's needs and priorities. Additionally, I believe the prolonged process is a result of the balancing act between Türkiye's needs and priorities and the requirements of the global financial system. Nevertheless, the real sector is particularly eager to hear about the policies that will be implemented as soon as possible.

Throughout this process, the perception surrounding both individuals has heightened expectations to the maximum level. With such high expectations, the passing time is increasing market volatility. However, since assuming office, Simsek tweeted twice on June 7th, requesting "some patience and time," while Hafize Gaye Erkan has yet to make any public statements other than a brief comment during the handover ceremony. Therefore, we currently lack clear information about the policy agenda to be implemented.

Undoubtedly, the task at hand is not easy. However, time is also of the essence. The fact that the policy agenda has not been announced or at least verbally indicated in broad terms exacerbates uncertainties.

These increasing uncertainties are also reflected in various predictions. For instance, one institution predicts that the Central Bank will raise the policy interest rate to 40%, while another suggests it will be set at 30%, and yet another places it at 25%. In one report, it is mentioned that the policy interest rate will be 15%. This range of predictions extends up to 25 basis points. This situation creates significant confusion among other actors in the economy.

Meanwhile, it is speculated that the policy interest rate will be directly utilized, while on the other hand, there is discussion about the revival of the previously shelved LLP (Late Liquidity Window) program. As you can see, these various levels of policy interest rates and applications signify different impacts and outcomes. Of course, the final decision will be made at the MPC meeting on June 22nd. Perhaps by that day, there may be changes in some members of the MPC as well.

However, my sincere recommendation is to emphasize the urgent need for the economic administration to employ the verbal guidance tool, which is frequently used by the Federal Reserve, the central bank of the United States, in order to address the prevailing uncertainty in the markets until June 22nd.

Business people, exporters, producers, and even banks are eagerly waiting with bated breath. I believe the expression "not a leaf stirs" was coined for a situation similar to this. Therefore, in this regard, I deem it highly beneficial for both Simsek and Erkan to provide verbal guidance that reduces uncertainty during this period, in order to prevent significant shocks in the markets on June 22nd and to minimize the extent of fluctuations leading up to that day.