Central Bank Independence Attacked Again

The 2001 crisis and the following the post-crisis period were important milestones for economic policy-making in Turkey as well as for the monetary policy. In 2002 Turkish Central Bank adopted a modern monetary policy with primary objective of achieving price stability after the bank had been vested with instrument independence in the previous year. Thanks to these efforts, Turkey has been able to keep the annual inflation rates in the range of 4%-12% after experiencing a hyperinflation period in 90s with 3-digit numbers. Indeed, the posted inflation figures can not be considered as favorable outcomes as they are still above the central bank’s target.

Turkey - Inflation Rates

However, the independence of the central bank recently became a point to debate for politicians whom led by President Erdogan, Minister of Economy Nihat Zeybekci and Deputy Prime Minister Numan Kurtulmus who is also a Professor of Economics. Last week (on Jan 16) Mr. Erdogan reiterated his long-established criticism of Turkish Central Bank for not reducing interest rates. Following that, Mr. Zeybekci signaled a change in the law of Turkish Central Bank which organizes the management structure and sets a primary target for the bank. Many pundits attributed this to setting some other targets like growth, employment for the central bank with a law amendment would be a primary agenda item for the new government after the general elections in June 2015.

Interestingly, Turkish Central Bank is more able to cut the interest rates in the upcoming monetary policy committees due to the decline in oil prices and easing inflation rates and is expected to do so by many analysts covering Turkish economics. Therefore Erdogan’s criticism has done nothing but raised the concerns over political pressure on the central bank’s decision. Simultaneously, lira has performed remarkably weaker compared to emerging country currencies, depreciated 2.5% to 2.34 per US dollar.

Post-elections scenarios in Turkey now include a substantial change in the way the monetary policy is made that would lead unpredictable things to occur in Turkish money markets. Investors should carefully keep track of any given remarks by the politicians on the issue.

What Google Says About Elections

With two months before the Turkish local elections take place, Prime Miniter Tayyip Erdogan’s party is still, by a wide margin, the most popular with voters, as it has been since 2002. However many are qıestioning if that wide margin is getting narrower these days due to corruption allegations that has tarnished the government’s image. Polls show Erdogan’s Justice and Development Party (AKP) still leads but voting rates differs greatly in each poll. By this none can assert that these polls are accurate predictors of the results of the upcoming elections. At this stage, taking a look at Google Trends data that consist of the searched key phrases in Google.

The key phrases that I am focusing are “AKP adayı” and “CHP adayı”. CHP (Republican People’s Party) is the main opposition party which is led by Kemal Kilicdaroglu and “adayı” means “candidate” in Turkish. This is an important point because the candidates have more influence on decisions in local elections than they do in general elections.

2009 Elections

The last local elections were in March 2009, as a result I used a date filter and generate a chart for the related key phrases between October 2008 and March 2009, an here is the results.

Google Trends for AKP and CHP Candidates - 2009

The blue line shows the number of searchs for AKP candidates as well as the red one does for CHP.  According to Wikipedia, AKP’s share was approximately 39% as CHP took %23 of the total votes. Google’s data does not seem like a bad estimator.

So What About Now

Google Trends for AKP and CHP Candidates - 2014

This time it is more complicated, and yes, flawlessly pictures Turkey. Not surprisingly, we will have much more backtakings in the chart as the election approaches. On the other hand, considering the average data (the ortalama bars), it is likely that the gap has not been too wide this time. Subjectively, I guess that it is AKP losing momentum, not CHP gaining.

Maybe tracking these two lines is not a useful tools to estimate the results but at least it is funny and I strongly recommend it. You can enhance the work by watching the trends in different periods or by adding nationalist MHP and pro-Kurdish-socialist HDP.