Turkey’s President Recep Tayyip Erdogan has named former economy chief Mehmet Simsek as his new treasury and finance minister.
Source: World Economic Forum
In the unveiling of his new cabinet, Turkey’s President Recep Tayyip Erdogan named former economy chief Mehmet Simsek as his new treasury and economy minister, leading to some optimism that the country will now forge a new economic path.
Simsek was known for his market friendly policies, and subsequently went on to become the country’s deputy prime minister from 2015 to 2018 after his stint as Turkey’s finance minister.
Erdogan, whose victory in the 2023 presidential election means an extension of his rule into a third decade in power, has changed most of his cabinet members with exception of the health and culture ministers.
Simsek creating a new team in the key economy portfolio would imply that he will have “pretty strong control over broader economic policy,” BlueBay Asset Management’s Senior EM Sovereign Strategist Timothy Ash said via e-mail. “The Turkish economy has a chance of pulling back from the brink,” he continued.
Goldman Sachs’ analysts similarly hold the view that the new appointment could bring about a greater chance of more orthodox policies.
“We believe the choice of Mehmet Simsek as the new treasury and finance minister increases the likelihood that monetary policy will shift towards a more orthodox direction,” Goldman wrote in a report dated June 3.
Turkey’s monetary policy currently places an emphasis on the pursuit of growth and export competition rather than taming inflation. Defying traditional monetary policies, Erdogan endorses the unconventional view that raising interest rates increases inflation, setting the central bank on a rate-cutting cycle amid surging inflation.
The Turkish lira has been on a significant depreciation lower in recent years, in part due to Erdogan’s policies and his influence over the country’s central bank. This fall has increased since the second round of the presidential elections, sliding to fresh lows following Erdogan’s re-appointment.
Turkish President Recep Tayyip Erdogan’s new Cabinet at the Cankaya Palace.
Anadolu Agency | Anadolu Agency | Getty Images
Goldman Sachs forecasts that the currency still has room to weaken further to deeper lows: 28 against the greenback in 12 months, compared to a previous estimate of 22.
“We revise our USD/TRY forecasts higher to 23.00, 25.00 and 28.00 in 3-, 6- and 12-months (versus 19.00, 21.00 and 22.00, previously),” the investment bank’s analysts wrote.
Wolfango Piccoli, the co-president of research firm Teneo believes that Simsek’s return will “at best” yield a partial re-adjustment of Turkey’s current economic policy. Piccoli added that a dramatic U-turn that embraces an outright conventional monetary policy approach is unlikely.
“It is also unclear for how long Erdogan may tolerate a more pragmatic stance on the economic front,” he said in a research note dated June 2. “To Erdogan, Simsek is the trick he uses until the markets give Turkey some respite.”