The fall in Turkish inflation to 39.6% y/y in May was largely driven by a sharp fall in energy prices, while core inflation increased. Bringing inflation down sustainably will require a major policy tightening and the appointment of a more credible cabinet over the weekend provides hope that policymaking may shift in a more sustainable direction. The central bank will need greater independence to raise interest rates but it’s unclear whether this will happen and, even if it does, how long any policy shift would last.
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