5th August 2019
The Elephant and the Little Old Lady: A tale of two Central Banks
It was the best of times, it was the worst of times. Dickens’ immortal line roughly sums up the differing actions of two of the world’s major central banks this week. In the US, the Federal Reserve looked at a stable and growing economy more vibrant than most around the globe and with very few domestic risks: they decided to cut interest rates. Back at home, the Bank of England foresaw a sluggish and shaky economy with looming dangers and a 33% chance of recession: they decided to leave interest rates unchanged.
Turkey’s Monetary Regime
‘Stability’ is not a word you tend to associate with Turkey. Back in the mid-18th century, the great European powers often debated “the eastern question”: what to do about the original “sick man of Europe”. The reign of current President Recep Tayyip Erdogan has also been characterised by political ailments: democratic backsliding, erosion of civil liberties, increased economic intervention, military skirmishes and a series of high-profile international disputes.
For investors, all of these make Turkey a risky place to do business. This was made painfully obvious last summer, when the Turkish Lira sunk to all-time lows against the USD, stock markets nosedived and inflation sky-rocketed. But for a while capital markets’ main concern has been the president’s penchant for interfering in monetary policy. Strongman Erdogan fancies himself as a monetary theorist – pushing the heterodox economic theory that high interest rates cause, rather than contain, inflation.