JPMorgan: - In Turkey, although more concerned about bond valuations initially, we now see some real fundamental risks in the medium term. The story of massive portfolio inflows supporting Turkey’s growth and investment case may disappoint going forward. Even if CBT manages to stabilise the local market, it is not clear whether its actions would be enough to really make the local market competitive globally again. Apart from the challenges posed by higher US rates, stronger commodities and the ongoing ‘EM repricing’, monetary authorities seem more limited politically in their ability to implement necessary decisions. Every investor pull-back in Turkey always risks turning into a self-reinforcing cycle of lower asset prices and real macro deterioration, in our view.The recent civil unrest has already shown up in declining consumer demand.
Even more troubling now is the fact that the government bond yield curve has been inverted for some time - a clear sign of an impending economic downturn.
How is the government responding to these new pressures? The authorities are doing what many governments normally do in a time of crisis - they "wag the dog". After accusing foreign reporters of attempting to destabilize the country, they are now blaming the nation's problems on credit card companies.
WSJ: - Turkey is hell-bent on destroying its newest enemy: the “interest-rate lobby” that the government blames for seeking to destabilize the country for its own profit. And credit cards are the latest front in the fight.While these types of actions are not surprising coming from Iran or Argentina, it's quite sad that Turkey is resorting to such tactics as well. This will only serve to send investors fleeing domestic markets, push up interest rates, and put a damper on consumer confidence. Ironically it will be the recession - more than any other factor - that will erode remaining support for Prime Minister Erdogan.
“It’s not for nothing that I recently mentioned the interest-rate lobby… and there’s also a lobby that prospers with non-interest gains. Those credit cards you keep talking about, don’t get them,” Prime Minister Recep Tayyip Erdogan told a constituency in Ankara as they broke their Ramadan fast in the capital Tuesday evening. “Who’s footing the bill? Not the rich but my poor brothers.”
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