The Turkish central bank’s monetary policy committee (MPC) on April 27 held its policy rate at 8.50%, the authority announced in a statement (chart).

As the market well knows by now, the central bank and its policy rate are, however, essentially idle on the sidelines. Though it keeps a strong hand on the lever marked "benchmark rate", the Erdogan administration nowadays conducts monetary policy via incessant macroprudential measures and non-capital controls. 

Almost every day more macroprudential measures or non-capital controls, or amendments to already amended measures, are circulated by news services following briefings given by unnamed sources. Even the treasury departments at Turkey's banks can hardly keep up with each announced move.

On April 3, the Turkish Statistical Institute (TUIK, or TurkStat) said that Turkey’s official consumer price index (CPI) inflation was recorded at 51% y/y in March compared to 55% y/y in February.

In January, the central bank left its expectation for end-2023 official inflation unchanged at 22% (upper boundary: 27%).

The guidance was based on the assumption that the lira would not experience another crash. As of April 27, the USD/TRY rate in the interbank market was up by 3% to TRY 19.44 from 18.80 on January 26.

On May 4, the central bank is scheduled to release its latest inflation report and expectations.

The USD/TRY pair has lately been on another record-breaking spree. The latest record for the embattled lira in the interbank market, set on April 17, stands at TRY 19.57.

From the beginning of March, the pair shot through the barriers in the 18.80s. It is now mainly trading in the 19.40s, with some spikes.

The reference to the “interbank market” is a must at the moment as the market rates are at around 21 with one to two lira spreads between buying and selling offers.

On April 10, local daily Ekonomi reported that the centuries-old Grand Bazaar in Istanbul is back in business as Turkey’s operational centre for FX transactions due to tight measures on FX transactions and hard currency supply difficulties.

From private companies to banks to citizens to public institutions, all economic actors reportedly head to the Bazaar to meet their FX needs.

Even the central bank is said to join the institutions meeting their FX requirements at the Bazaar. There are photos of wheeled anchor chests that carry banknotes at the Bazaar. The Turkish presidency’s communications office has denied that the chests belong to the central bank.

On April 20, Bloomberg reported that the chests belonged to government-run natural gas monopoly Botas. On April 27, Botas denied that this was the case.

Speculation suggests that local conglomerate Ahlatci Holding is carrying out the transactions at the Bazaar and that the banknotes enter the financial system via government-run banks. The banks eventually park the banknotes at the central bank and gas importer Botas accesses the money via the government-run banks.

“The spread between the central bank and the Bazaar is almost one lira. About 5%. Those who collect money with wheeled chests should definitely be earning something,” Ali Babacan, Erdogan’s ex-economy czar and present-day Deva Party chairman, said on April 25 during a televised interview.

On April 26, Altug Ozaslan, a founder of Fortuna Capital, told Ekonomi that the Bazaar has also faced FX shortages in the last 15-20 days.

“In the past it was like this—even if you carried out a very large transaction, you would bring the money in your bag and they would give you one million dollars in 15 minutes. Anyway, you’d call them before you go. Today, across the last 15-20 days, they give a T+2 settlement day! Because the Bazaar cannot bring this sum together,” Ozaslan said.

If the USD/TRY remains stable, Turkey’s official inflation figure is set to decline to the 30-40%s across 2023.

Amid the booming lira supply and hard currency outflows via record trade deficits, officials only keep the lira from entering into a nosedive by coercing bankers into blocking and gumming up domestic FX demand. Also supportive are unidentified inflows and support from “friendly countries”.

Another lira calamity would come as no surprise. It could happen at any time.

The political uncertainties have, meanwhile, reached chaotic levels even by Turkey’s standards. On April 25, Turkey’s president, Recep Tayyip Erdogan, fell ill during a live interview on television.

On April 26, he cancelled his public appearances.

On April 27, a ceremony was held at the construction site of the Akkuyu nuclear power plant in Turkey’s Mersin province on the Mediterranean coast. The plant, being built by Russia's Rosatom, is nowhere near complete, but Erdogan nevertheless insisted on some kind of triumphal ceremony as part of his election campaign ahead of polling day on May 14. Thus, the Turkish president and fellow autocrat Vladimir Putin (who is highly invested in a successful Erdogan re-election bid) celebrated via video link (with a wan Erdogan in Ankara and Putin wherever Putin is nowadays) the first shipment of nuclear fuel to arrive at Akkuyu.

The misleading suggestion from the strongmen pals' spin doctors that a real milestone was achieved appeared to work—the Guardian, for instance, reported that the nuclear plant had been “launched”.

Erdogan had earlier this month publicly suggested that Putin might arrive in person at Akkuyu for the ceremony, but the Russian leader was obviously not convinced he should do so. If Putin had arrived in Turkey prior to Erdogan falling ill and cancelling his own appearance at Akkuyu, things could have gotten very awkward indeed.

The ceremony was to be held at 13:00 Turkish time, but it was delayed by three hours. For many observers, Erdogan and Putin “there” by video didn’t quite cut it.

Screenshot: Putin on the video connection tells viewers about the nuclear plant as Erdogan waits for his moment.

Screenshot: Erdogan looked rather tired as usual.

Screenshot: Erdogan will use a photo of how he looked 10 years ago on ballot papers.

On April 27, Erdogan’s health minister, Fahrettin Koca, said that Erdogan’s health difficulty was gastroenteritis, a common bacterial or viral infection known as stomach flu.

Armed incidents, in the form of knife assaults and guns being fired around opposition parties' headquarters and election campaign locations, continue. However, so far there have been no casualties, despite some bullets striking party buildings. Some observers war-gaming the notion that Erdogan’s officials might attempt to declare a fake election victory for their man expect that some jarring tensions would be sown in Turkish society ahead of such a move by “events”. But events to date have been far from what would be needed to deliver the required shock to the system.

Those with their eye on the ball know that Erdogan is guaranteed a stunning defeat in a free vote at the polls. There are tens of millions in Turkey with hunger issues thanks to the country’s economic disaster (which started long before covid and other ills such as the Ukraine war). In the first round of voting in just over two weeks’ time, Erdogan can only attract a maximum vote share in the 30%s, while main rival Kemal Kilicdaroglu will be in the 60%s.

Nonsensical arguments suggesting a “tight” or “neck-and-neck” race based on some highly questionable opinion polling are, let’s contend, due to the well-known ignorance dominating the mainstream media’s coverage of Turkey. The taking of opinion surveys is a problematic method of research. The fact that the mainstream media has a collective belief in the method does not, unfortunately, change that reality.

The procedural wheels for the elections continue to turn. On April 27, voting at ballot boxes abroad began.

Delaying the elections still remains the main alternative for Erdogan, with his latest health problems adding even more uncertainty to an already totally uncertain election environment.

One known unknown is whether Erdogan has the strength to move on the nuclear option, namely the declaration of another election victory that would as per usual remain beyond verification. As said, some shocking, disorientating events would need to occur for this option to become viable.

Erdogan, let's note, now has the option of providing Turkey with a godsend. He could head abroad to receive medical attention. It would be a perfect face-saver. He could argue that he would of course have triumphed in the elections if he had not needed treatment for his urgent health problems.

Amid the chaos, the opposition bloc has unofficially named its central bank governor as Hakan Kara, a former chief economist at the regulator. Where orthodoxy is concerned, Kara is 100%-organic orthodox. There are no additives.

Champagne bottles would be popping in London and New York if Kara was appointed to the post.

The turbulence-free mood on the markets remains intact. Turkey’s five-year credit default swaps (CDS) remain below the 600-level, while the yield on the Turkish government’s 10-year eurobonds remains around the 9%-level.