Turkey's post-election return to orthodoxy

Following Turkey's May 2023 elections, President Erdoğan reversed course and installed a new economic team committed to orthodox policy, with Hafize Gaye Erkan appointed central bank governor in June 2023 and a tightening cycle beginning immediately. The policy rate rose from 8.5% to 50% by March 2024, among the most aggressive tightening campaigns of any major central bank in this period. Governor Fatih Karahan, who took over in February 2024, reported in August 2024 that annual inflation stood at 61.8% in July, down from its spring peak, while underlying monthly inflation had cooled to about 2.4-2.6%, domestic demand was contracting - discretionary spending on items like jewelry, electronics, and car rentals was falling - and the current account deficit had narrowed to below 2.5% of GDP. The lira-deposit share of the banking system passed 50%, exceeding the central bank's own target, as FX-protected deposit schemes introduced during the unorthodox era were wound down to about 11%. Karahan projected year-end 2024 inflation near 38%, framing the tightening as a multi-year project to rebuild the credibility the lira and lira-denominated savings had lost after years of deeply negative real rates.