The possible military operation of Syria and Esad to Idlib, the rebel-held province of Syria, has brought many problems before Turkey. Ankara is unhappy with a possible Idlib operation as it may lead 3 million civilian to move towards Turkey border. While Idlib summit in Iran last week did not go as the way Ankara wished, Idlib seems to determine the next steps of Ankara in the Syrian impasse. Since Erdoğan’s ceasefire proposal in Syria was declined by Russian leader Putin in Iran, Erdoğan wants to have another summit in Istanbul according to Hilal Köylü’s piece on Halagazeteciyiz. Erdoğan openly revealed in Iran summit that Turkey might not be able to meet the needs of possible 3 million new Syrian. While it seems that Turkey is counting on Germany and France’s support on the matter, Trump’s possible reaction towards Esad’s military action is still unknown.

With the inflation figures released last week, Turkey appears headed toward stagflation — high inflation coupled with a contracting economy.

The country’s inflation as measured by the Consumer Price Index (CPI) rose 2.05 points in August to nearly 18% — the highest level seen since 2003 according to central bank figures released Monday. It is a cost inflation, which the Turkish lira’s depreciation is behind the rising trend of inflation as the economy, on both production and consumption sides, is heavily dependent on imported goods. The lira has lost 76% of its value against the dollar since January 2018, pushing up the cost of wide variety of goods.

After the release of inflation figures, the heads turned to the Central Bank. Erdoğan’s pressure on the Central Bank not to increase its policy rate is not a secret, even though the market rates on Turkish bonds (interest rates on 2 years bond saw 28%, but now down to 23%, 5 percentage points higher than the policy rate’s upper bound) and interest rates of consumer credits have already increased due to the central bank’s unwilling to use interest rates to preserve the currency’s value and to control inflation.

The Central Bank signaled that it might take “necessary actions” against “significant risks to price stability.” “Monetary stance will be adjusted at the September Monetary Policy Committee Meeting in view of the latest developments. The Central Bank will continue to use all available instruments in pursuit of the price stability objective.” The central bank’s short statement read.

Observers and markets deduce from the statement that the central bank will increase the interest rate at the upcoming September 13 meeting. The central bank left rates on hold in July, which weakened the lira further. The last raise came in June and made the bank’s one-week repo rate 17.75% with 1.25 percentage point rise. With CPI at 17.9% and the higher band of the bank’s policy rate at 19.75%, at least 2-percentage points raise is expected from the bank to support the lira and keep its promise of price stability.

 

As the central bank is under pressure not to touch interest rates, it uses implicit measures to keep Lira slide further and control the increasing trend in inflation. The last implicit measure of the bank was to decrease tax rate on lira deposits to 5% from 15% and increase tax rate on deposits in foreign currency to 20% from 18%, effective for three months. The budget deficit and income inequality will be affected negatively by this measure.

Although the increase in inflation was higher than the expectations, experts are confident that rising trend in inflation will get worse in September and October. The disparity between the Producer Price Index (PPI) and CPI is as wide as 14 points as PPI reached to another record level of 32.3%. As weak domestic demand had prevented producers to reflect rising costs in their final prices up until mid August, the week just after the religious holiday witnessed high raises in wide variety of consumer goods the impact of which will be seen in September inflation data.

On top of that, the Turkish government raised natural gas prices and electricity prices by 14% and 9% respectively as well. These increases had been expected, as the AKP government preferred not to pass down the cost of the lira’s depreciation to voters until after snap elections in June and the impact of these increases also will be accounted measured in September data.

The desperate need of Turkey to control Turkish Lira’s slide made the government more creative. The Ministry of Treasury and Finance announced a new measure which aims to increase the liquidity of foreign currencies in the country. The ministry announced that bringing incomes from exporting to the country should not exceed 180 days (360 days for constructing firms) and at least 80% of it will be converted in Turkish Lira by selling it to a bank. The banks that mediate exports will be responsible for export amount to be brought to the country and monitor its sale. Effective immediately, the regulation will remain for six months. However, exporters expressed their concerns over the measure. As they need money in foreign currency for their imports, converting export revenues into Turkish Lira will cause losses due to fluctuation in Turkish Lira. Berat Albayrak, the minister of Treasury and Finance said that they can make additional regulations to meet the exporters’ demands after a meeting with the representatives of the exporters.

Our editor in chief and the Ankara Representative of Artı TV Sibel Hürtaş was before the court last week. Hürtaş had been taken into custody for her news programs on Artı TV and for retweeting the program’s tweets this year on January 22. Hayri Demir was also among those who had been taken into custody on the same day for news and postings on the “Operation Olive Branch.” Following four days of detention Hürtaş and Demir had been released under judicial control. Hürtaş facing 10.5 years jail time, argued in her defence that the two of the evidences in the indictment of the prosecutor are only the tweeting of the news she had previously reported. Hürtaş, asserting that what she has been doing was journalism at international standards, argued that the prosecutor was obliged to gather evidence for the benefit of as well as against the defendants and that this obligation had not been fulfilled. Hürtaş defended that as journalists, they had adhered to the principle of impartiality. She said that they had reported about the Afrin operation only after they gathered opinion from all concerned sides and argued that the prosecutor chose to select certain tweets and presented a biased picture. Following a description of impartiality Hürtaş was also critical about the fact that the indictment included a picture of her one-year-old son as an evidence. She said her son was carrying a sign at the commemorating of the colleague Hırant Dink and that she did not understand why this was a criminal act. The next hearing will be held on November 22nd, 10:40 AM.