Political Economy of Turkey’s Monetary Policy Experiment (2018–2023): Policy Coalitions, Monetary Unorthodoxy and External Constraints

This article analyses Turkey’s monetary policy experiment between 2018 and 2023. While central banks globally tightened monetary policy in response to rising inflation, Turkey pursued sustained interest rate cuts, expanded state-directed credit and relied on discretionary intervention in foreign exchange and financial markets. Conventional explanations centred on leadership preferences, institutional erosion or electoral opportunism cannot fully account for the persistence or timing of this unorthodox regime. Drawing on the Growth Models Perspective and critical state theory, the article argues that the experiment emerged from the exhaustion of Turkey’s credit-driven, dependent financialised growth model and the political realignments this exhaustion generated. As external vulnerabilities intensified, sectorally differentiated monetary preferences reshaped the dominant social bloc, giving rise to a coalition favouring low interest rates, credit expansion and discretionary state intervention. This coalition sustained the experiment after 2021 by stabilizing employment and economic activity despite accelerating inflation. However, the internal logic of the experiment intensified balance-of-payments pressures and led to sustained reserve depletion, rendering the regime untenable. After the 2023 elections, monetary policy was gradually recalibrated towards orthodoxy under binding external constraints. The article conceptualizes monetary policy as a coalition-mediated political instrument shaped by structural external constraints.