As expected, the Central Bank of Turkey (CBT) has reverted to unorthodox monetary tightening, following the financial market turmoil in the aftermath of the announcement on 6 May that the local election in Istanbul will be rerun (see WERO 9 May 2019). At the end of last week, the CBT tightened reserve requirements, withdrawing TRY7.2bn from the market, and suspended the use of its key policy one-week repo rate (24.0%) “for a period of time”. Markets are now funded through the overnight lending rate (25.5%). Meanwhile, the rebalancing of the economy continues, albeit at a reduced pace, as the current account posted a deficit of -USD0.6bn in March, taking the 12-month rolling deficit to -USD12.8bn. Import contraction has eased to -15% y/y in March (from a peak of -27% at end-2018) as authorities have stimulated private sector credit growth (+15.6% y/y in March, up from +13.1% in January). Industrial production continued to shrink by -2.2% y/y in March. The unemployment rate remained stable at a multi-year high of 14.7% in February, up from a recent low of 9.6% in April 2018.
