As Turkey entered a new bout of political turbulence, JPMorgan on May 22 said that it expects Turkey’s central bank to hike its main policy rate (one-week repo) by 300 basis points to 40% at its next rate-setting meeting, scheduled for June 11, or ​potentially earlier.

HSBC was, meanwhile, more cautious. The British bank said it expects a rate hike if the pressure on the lira increases in the coming period.

The implied rates in Turkish lira swaps also approached the 43%-level.

Turkish central bank’s one-week repo rate stands at 37% while active funding is provided via the overnight window within the so-called interest rate corridor. The active funding rate stands at 40%. A 300-bp rate hike would bring the overnight lending rate to 43%.

Turkey relatively calm

On May 21, the 36th civil chamber at the Ankara regional (istinaf) court (an appeals court that works above courts of first instance and below the supreme court (yargitay)) stripped Ozgur Ozel of his leadership of the main opposition Republican People’s Party (CHP) and reinstated predecessor Kemal Kilicdaroglu.

On May 22, the political atmosphere in Turkey was relatively calm, with both Ozel and Kilicdaroglu opting to not escalate tensions. Ozel remained at the CHP party headquarters building while Kilicdaroglu was stationed at his private office. Both are in Ankara.

Divide and rule

Istanbul Blog writes: After losing his post to Ozel in a vote taken at the November 2023 party congress, Kilicdaroglu leased the private office. Given that the judicial process that brought about the May 21 ruling was first launched in 2024, Kilicdaroglu can be seen to have long ago signalled his readiness to take back his post and conduct the work required from the office.

Ozel has not been jailed. That suggests that the ruling Erdogan administration's objective is to produce a divided CHP, rather than follow through hard in its targeting of Ozel and the annulment of his party leadership.

What comes next?

Turkish politics is always a giant mutating ball of gossip. Turks love to talk all day long. The typical Turk has an idea about everything.

The Turkish state, meanwhile, controls each and every corner of life in the country. As a result, Turkey, which hosts more than 100mn people (counting illegal migrants as well as legal migrants), does not get beyond simply talking when it comes to what politics will bring next.

You could make a board game at home with snap elections, new political parties emerging from the CHP and various other imagined developments all for the sake of forecasting some upcoming developments in Turkish politics. You have every chance of doing better than some of the veteran forecasters have done in recent years.

Operations stop Imamoglu from running for president

Since October 2024, the CHP has been battered by countless operations launched by prosecutors. Its presidential candidate, Istanbul mayor Ekrem Imamoglu, has been in jail since March 2025.

The operations targeting the CHP were launched after Imamoglu signalled that he was getting ready to run for the presidency in the next elections. The number of jailed CHP mayors increased to 24 on May 22. Imamoglu would prove a serious rival to Turkey's leader of 23 years Recep Tayyip Erdogan in a presidential poll. Some Turkey watchers think he would wipe the floor with him to the point where even some ballot box outcome 'operations' would be in vain.

Reserves in focus

On May 21, Bloomberg quoted unnamed traders familiar with transactions as saying that government-run banks sold about $6bn to defend the lira on the day that Ozel's party leadership was voided by the court. More accurate figures will be available on Monday (May 25).

The interventions in the currency market are reflected in the central bank’s balance sheet with a one-work-day lag and the balance sheet figures are released with a one-work-day lag. As a result, the sales that take place on a Thursday are not seen in the balance sheet until the following Monday afternoon.

Official figures on interventions are never released. The interbank currency market is controlled by government-run banks with FX ammunition provided by the central bank in a scheme unique to Turkey that is referred to as "backdoor interventions". The volume of the interventions is estimated via calculations with the central bank balance sheet.

Amid the latest clashes in the Iran War that took place between February 28 and April 8, and may enter a new chapter if the current ceasefire does not hold, the central bank burnt through an estimated figure of around $50bn in March to defend the embattled Turkish lira (TRY) amid severe carry trade outflows.

Between end-March and May 8, the authority restored $18bn. As of May 8, the cumulative interventions in the post-February 28 period declined to $32bn.

Currently, the government still has the space to overcome the impact of the latest CHP operation.

Markets rebound and stabilise

Thanks to the interventions, the USD/TRY pair, which is subject to the strict control of the government, remains unchanged in the 45s. In the coming days, the central bank’s FX reserves will be under close scrutiny.

Borsa Istanbul’s benchmark BIST-100 index on May 22 rebounded by 5% after plunging 6% the previous day.

Turkey’s 5-year credit default swaps (CDS), meanwhile, stabilised above the 250-level, rising around 20 bp. Eurobond and domestic bond spreads showed similar reactions.