Peace hopes and rate cuts
PKK’s honorary leader Ocalan finally issued a call for PKK’s disarmament and self-abolition, which covers Syrian Kurds, too. While PKK’s immediate declaration of ceasefire is an encouraging response in terms pushing the process forward, “getting there” -- whether the end game is satisfying Kurdish demands for equality or inclusion, or a new constitution that incidentally grants Erdogan eligibility for a third term -- is going to be extremely time consuming.
Erdogan has two options, first to immediately call upon AKP, MHP and DEM Party to start talking about a new constitution or bide his time until the process of disarmament reaches the point of no return. The politics author argues for the latter, which means Erdogan will be cutting it dangerously too-close to CHP leader Ozel’s deadline for early elections, which, to recall, is November 2025.
In a second essay, the politics author goes down the rabbit hole trying to make sense of a sudden, comprehensive and absurd crack-down at home. Since “crazy” is the fashion nowadays, he loudly wonders whether Erdogan will dispense with competitive elections altogether.
In the final essay, he reacts to a Reuters’ special that claims Israel is actively lobbying the White House to keep Syria weak and decentralized to counter the presumed threat of Turkish expansionism. The specter of Turkey and Israel coming to blows still commands miniscule odds, but Erdogan and Trump quarreling over Syria is a possibility that he is monitoring closely.
Economic confidence edged down in February, but for the first two months of the year combined remained higher than the final quarter of last year. The unemployment rate fell further in January, but that was because the labor force fell even more than employment. Then again, we should be extra cautious about reading too much into monthly employment data, given its very noisy nature.
Sectoral inflation expectations presented a mixed picture for February. Corporate sector expectations, while remaining elevated, improved slightly further, while household expectations, oddly enough, deteriorated.
The 12-month rolling trade deficit widened in January, as heralded by the preliminary release earlier, as core exports were outpaced by core imports on an annual basis.
In an understandable intervention, the CBRT lowered the F/X loan growth cap further.
The coming week is full of important attractions, with February inflation (Monday) and the MPC decision (Thursday) topping the list. Broadly in line with consensus, we forecast February inflation around 3% (after taking into account the partial rollback in patient contribution fees for services at public health care institutions; ) with risks tilted slightly to the downside, notwithstanding an enormous degree of uncertainty around this forecast. As for the rate decision, also in line with consensus, we see the MPC lowering the policy rate by another 250 bps to 42.5%, though without entirely ruling out a less steep cut (see discussion in our report).
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