‘The Leopard Never Changes Its Spots’: Turkey Given Benefit Of Doubt, But Optimists Learn Hard Lesson (Again)

As you can probably imagine, the knee-jerk reaction in Turkish assets to Erdogan’s sacking of Murat Cetinkaya was not favorable.

The lira of course plunged out of the gate, falling more than 3.4% at one juncture, before trimming losses, and the read-through for stocks wasn’t pleasant, although conceivably, it could have been much worse.

Turkish banks took it on the chin, falling nearly 3%, before staging something of a rebound. The lira has managed to claw back about half of the original decline. Considering what Saturday’s move says about Erdogan’s determination to remain belligerent in the face of economic reality, these moves are not that large. Turkey, it would appear, is being given the benefit of the doubt.

Read more: In Epically Brazen Move, Erdogan Ousts Central Bank Governor

Whether or not the lira can resume its rally is debatable to say the least. Although some are keen to suggest that any currency weakness tied to Cetinkaya’s ouster will leave CBT less scope to cut (an ironic outcome for Erdogan), with inflation ebbing a bit and an executive who isn’t shy about simply dismissing anyone who isn’t “on the same track” (as he put it over the weekend), it’s hard to see CBT not cutting at the next meeting.

As far as the S-400 standoff goes, Donald Trump better be prepared to explain to Congress (and also to NATO) why the US is allowing the purchase to go through if he doesn’t plan on imposing sanctions. Because thanks to the US president’s conciliatory remarks at the G20, Erdogan seems sure he’s going to get away with buying the Russian systems. He and Putin spoke over the phone on Saturday and one imagines they had a good laugh at Trump’s expense. “S-400 delivery to Turkey is in the implementation stage”, Putin’s spokesman Dmitry Peskov said Monday.

Over the weekend, I casually wrote the following of Erdogan’s move against Cetinkaya:

I shouldn’t glorify this. But my point is always the same: Autocrats who’ve spent this long consolidating power don’t just decide, overnight, to stop being crazy. If you get a concession (in this case the Istanbul vote), you can expect a crackdown on another front imminently.

Consider that, and then consider the following out Monday from SocGen’s Phoenix Kalen:

The leopard never changes its spots, i.e. President Erdogan has chosen to reject compromise and pragmatism in the aftermath of the Istanbul electoral defeat. We had hoped that the Istanbul mayoral rerun (in which AKP’s candidate was defeated despite forceful campaigning by Erdogan) would curb the president’s criticisms of monetary policy and restrain him in the imposition of controversial economic views on the central bank. Unfortunately, there appears to be no such change of heart. This also leads us to question our assumption that Turkey would step back from the brink in its stand-off with the US regarding the acquisition/activation of the Russian S-400 missile defence system.  

Any questions?


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