The Unintended Consequence of March 19 in Türkiye: A Window to Tame Inflation?

Once again, Türkiye’s ruling bloc has managed to turn crisis into control—this time, by using political turmoil to justify economic orthodoxy.

In my previous piece, I argued that economic conditions would not rank among the top five factors capable of diverting the Erdoğan government from its current trajectory. Developments over the past two months have confirmed this thesis. Today, I would like to push the argument further: the March 19 Operation may well serve as an opportunity for the government's economic management, rather than a constraint.

Stabilizing Through Intervention: Three Key Measures

To understand the unfolding dynamic, we should first review the policy measures enacted in response to the economic fallout of the March 19 Operation. These can be grouped into three phases:

1. Reserve Sales:
As short-term foreign investors exited rapidly, the Turkish Lira (TL) came under intense depreciation pressure. The Central Bank of the Republic of Turkey (CBRT) intervened with reserve sales totaling approximately $50 billion. This intervention succeeded in curbing the TL’s decline. However, it also underscored a structural vulnerability: in an economy that runs persistent current account deficits, accumulated reserves are often illusory—more like castles built of sand than strategic buffers.

2. Interest Rate Hikes:
Reserve sales alone failed to stabilize the TL. Consequently, the CBRT raised interest rates in two successive moves—first in an extraordinary meeting, then in a regular one. The Weighted Average Funding Cost rose to 49%, reflecting a significant tightening of monetary policy.

3. Macroprudential Measures:
When interest rate hikes and reserve sales fell short, the government introduced additional macroprudential tools. These aimed to both reinforce CBRT reserves and reduce pressure on the currency.

Short-Term Outcomes and the Myth of Economic Constraint

A key outcome is that the widespread belief—particularly among opposition circles—that economic hardship would force the government into retreat was once again proven misguided. This belief, which I describe as liberal fatalism, assumes that economic pressure inevitably leads to political moderation. Yet, this assumption has failed repeatedly. Despite lacking empirical foundation, it reemerges at every critical juncture. For now, we leave this recurring myth noted for deeper analysis at a later date.

Another important result is the tightening of financial conditions. This constellation of high interest rates and restrictive measures, although harsh, may in fact present a strategic opportunity for an economic administration long struggling with credibility and consistency. In this sense, the March 19 Operation may function as yet another instance of what could be called a “blessing in the curse.”

Inflation Outlook

Before the March 19 turning point, the economic debate centered on premature interest rate cuts. These were introduced despite inflation not being under control, and the CBRT had already revised its 2025 inflation projections upward—drawing justified criticism: if inflation is going up, why are you cutting rates?

Ironically, the fallout from the March 19 Operation provided the CBRT with an unexpected window for monetary tightening. Measures that would have been politically or economically unfeasible under normal circumstances became implementable under the guise of crisis response. As a result, financial conditions tightened further—an unintended consequence of March 19—which, for the first time in months, created a genuine opportunity to rein in inflation.

Even CBRT Deputy Governor Cevdet Akçay acknowledged this shift during a recent panel in London. According to Akçay, “the inflation outlook is significantly brighter today than it was before the turbulence caused by the March 19 Operation and ongoing trade wars.”

This optimistic outlook is partly due to the relative success in stabilizing the TL through reserve interventions, which reduced the inflationary impact of currency depreciation. Additionally, the easing of global trade tensions—particularly a temporary settlement between the US and China—and declining oil and commodity prices have improved Turkey’s inflation prospects. The added post-March 19 financial tightening has further opened the door for the government to pursue inflation control more effectively.

What Comes Next?

Despite the window of opportunity, economic management faces significant constraints. Sustaining this level of interest rates and financial tightening is politically unsustainable in the long run. Mounting criticism—particularly from labor-intensive sectors—makes this clear. Industry representatives are increasingly warning that “production cannot be maintained under these interest rates.”

Thus, the March 19 Operation’s economic consequences have not derailed the government’s political course; on the contrary, they have enabled the resumption of its anti-inflation program. The challenge now is not whether the government can maintain this path, but how long it can do so without political cost.

A Delicate Conjuncture and the Role of the Opposition

In the coming months, we are likely to see a unique conjuncture: on one hand, an opportunity for inflation control has emerged; on the other, the burden on labor-intensive sectors has intensified.

We have a good sense of how the government will navigate this phase, based on past practices. The real question lies with the opposition. Can the struggle for justice be articulated in tandem with economic demands? Can, for instance, a robust campaign in July—calling for real wage adjustments—become a central axis of social mobilization?

In short, we already know the government's authoritarian playbook. The key to unlocking this conjuncture lies in the opposition’s hands.