The arrest of a leading opposition politician in Turkey on Wednesday has triggered a major sell-off in the country’s stock market and currency – which has continued today – and serves as a stark reminder that the shift back to macro orthodoxy is at the mercy of changes in the leadership’s thinking. But developments this week also highlight an improvement in the central bank’s credibility and the economy’s balance sheet. Elsewhere, the softer-than-expected data out of Poland this week have bolstered calls for rate cuts, but we think the inflation outlook will prevent the National Bank from easing policy until next year.
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