Turkish markets are 'on the verge of a renaissance moment,' Citi says

Investors who ran from Turkey in droves over the last several years may want to start heading back, the latest report from Citi on the country's nascent signals.

After more than half a decade of dramatically depreciating currency, burning through FX reserves and unorthodox monetary policy, Turkey's economy is battle-scarred. Official April figures show inflation in the country of 85 million sits at nearly 70%, Turks struggle to afford basic goods, and the lira has lost some 81% of its value against the dollar since this time in 2019.

Exercising tight control over the central bank, Turkish President Recep Tayyip Erdogan for the last few years refused to raise rates, calling them "the mother of all evil" and insisting, against economic orthodoxy, that lowering them was the way to cool inflation — which ended up achieving the opposite.

New economic and central bank team appointments since roughly a year ago appear dedicated to reversing Turkey's fortunes, no matter how painful the process. The central bank oversaw an aggressive cumulative rate increase of 3,650 basis points between May 2023 and January 2024. It lifted rates again in March of this year, to the central bank's current 50%.

It said at the time that "tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed."

And investors are taking notice.

"The authorities' shift towards policy normalization has galvanized investor interest in Turkish assets," according to a Citi report published Thursday.

The bank holds that the performance of the Turkish lira, as well as the country's sovereign and corporate bonds, will be determined primarily by "(i) the CBT's success in re-anchoring expectations,