As of late, the Turkish government has been busy trying to stimulate the economy. It has applied many tools: selective tax breaks, providing more expensive credit to consumers, restructuring loans, cutting loan and saving’s rates, playing with reserve rates, trying to bury NPLs in zombie vehicles to free up cash, giving certain groups holiday bonuses, longer payment terms on credit cards (taksit) and so on.
On the other side of the coin, the Turkish government has been slowly raising consumption related taxes on the typical basket of goods like alcohol, tobacco, natural gas, electricity, other fuels, and a few other goods. Also, not to mention the income taxes and currency tax. Thus, this has had a counterbalancing effect. Wiping out the stimulant tools it applied at the same time.
The government was hoping the lower yield curve in the US would spur the CB to cut rates more aggressively. Therefore, cheap money would flow back into Turkey and solve many financial issues it faces today. However, with strong economic data, the US seems fairly strong so a decrease in rates is on hold for a few more months at least.
Thus, what will the Turkish government’s next move stimulate economy? First, they may try to curb inflation so they can cut rates again. Second, they may try to borrow more from abroad by issuing bonds and using swaps with other countries. Third, offer more business incentive programs. Finally, incentives to buy a house.
For me, I posit that the economy will start to show more weakness especially after the Summer months until about the end of the year.
