I guess our economic commentary is getting really extreme and dangerous. Now we will actually evaluate election outcomes on what it does to the central bank of all things?
So, it was really ironic to see an article like this. It says recent political uncertainty is a boon for its central bank:
Turkey’s national election ushered in a period of political turbulence not seen in more than a decade, triggering a sell-off by jittery investors. But there may be an upside: reaffirming the central bank’s independence. After the Justice and Development Party, or AKP, lost its 13-year majority in parliament at the polls Sunday, the lira plummeted 5% to a record low against the dollar, while benchmark 2-year bond yields jumped over 10% and stocks nosedived 8%.
Yet as Turkey’s politicians contemplated the first coalition since the AKP swept to power in 2002, the three-term government’s weakening grip on the state could emerge as a boon for the country’s beleaguered central bank.
“The AKP has lost its majority in parliament and political uncertainty will likely remain high for a prolonged period. On a positive note, the central bank of Turkey may have more room to act independently,” said Yarkin Cebeci, a J.P. Morgan Chase & Co.economist in Istanbul.
Turkey’s slowing $800 billion economy has caused friction among policymakers, with the government attacking the central bank for not cutting interest rates quickly enough to stimulate growth.
Some ministers and AKP officials have even suggested expanding the central bank’s mandate to support economic growth and employment, even as Governor Erdem Basci has repeatedly failed to meet his core mission of lowering inflation to the 5% target since taking his post in 2011.
Despite lower oil prices, and against official forecasts, Turkey’s inflation crept up to 8.1% as of May. The lira’s 18% slump against the dollar since the beginning of 2015 was a key driver, and U.S. Federal Reserve plans to start raising interest rate as soon as this year threaten further currency weakness.
Political uncertainty is bad for all the citizens. What will an independent central bank do when all policies go awry in uncertainty?