Turkey’s Central Bank in its August 24 meeting had raised the interest rate by 750 basis points, and 1,650 basis points since the process of tightening the rates began in June, to 25 per cent, from 8.5 per cent to 16 per cent. Newly-appointed central bank governor Hafize Gaye Erkan told Jewellery Export Association, “We continue to implement our roadmap, which we shared with the public at the presentation of the Inflation Report, with gradual and decisive steps in order to lay the groundwork for the start of the disinflation process in a sustainable way in 2024.” The inflation rate is expected to touch 60 per cent by the end of the year from 48 per cent last month.

The rise in central bank rate hike is seen as having the political support of President Recep Tayyp Erdogan, who after he won a record third term in May, had appointed Mehmet Simsek as finance minister, plucked from the London financial district, and Erkan’s appointment is as seen part of the same reformist intent. For the past several years, Erdogan had dismissed four central bank governors and he indulged in unorthodox moves like pushing down the interest in the face of rising inflation. Outsiders, especially foreign investors, see the rate hikes as return to economic orthodoxy.

After these rate hikes carried out by Simsek and Erkan, there is renewed interest among foreign investors to get back to Turkey. Simsek is expected to start off with a roadshow at Goldman Sachs headquarters in New York on September 19 to woo foreign investors.  Viktor Szabo, a portfolio manager in London, said, “It feels like they are correcting the mistakes they made with their first rate hike decisions.” Ola El-Shawarby, another portfolio manager, said, “The more proof we get of the return to orthodoxy the more likely we are to revisit these investments.”

After his election victory Erdogan had said that he would assemble the best finance team in the world to set right the economic woes of the country. And in choosing Simsek and Erkan he seems to have fulfilled his promise. The government is also doing other things such as raising taxes to limit fiscal deficits, rolling back a depreciation-protected scheme and raising $20 billion in foreign exchange.

Interestingly, both Turkey and the European Union (EU) are reconsidering the issue of Turkey’s membership of EU, which had been dangling in the air for decades. There was a time when Erdogan turned his back on pursuing his country’s membership in EU, and the EU had on its part put a lid on the issue. The subject has been revived from both sides this time round.

There is a clear perception that Turkey’s economy is in many ways part of the EU market. The country has been seen as part of the Western world as is reflected in Turkey’s membership of NATO.

It is of course going to be a drawn-out process, and there will be hard negotiations. But there is little doubt that Turkey’s economy is a natural part of the EU economy. The EU could be sensing the economic advantages of having Turkey in its circle both in terms of a market for its goods in Turkey and through Turkey to other Middle East countries like Iraq, Syria, Lebanon and Iran.

The Simsek-Erkan reform moves in raising bank rates and taming inflation can be seen as part of a long-term plan of Turkey’s economic integration with the EU. Once the health of Turkey’s economy is restored, its growth will attract foreign investors from Europe, and it will open up doors of opportunity for both sides which they cannot ignore.