Turkey is a large and important emerging economy on the border of the EU, with GDP forecast by the IMF to overtake that of Italy in 2025 when measured using purchasing power parity exchange rates. With 85mn people, however, it is still a country with much lower living standards (about 70 per cent of Italian levels).

Since its economy is now the size of an important G7 member, its economic management deserves wider scrutiny. And Turkey has been on a journey in recent years. The country has its fifth central bank governor since the eve of the Covid-19 pandemic, and Turkish monetary policy has been, to put it mildly, a bit of an experiment.

I’ve often said that orthodox economics is just a bad name for the application of knowledge and experience. Turkey has learnt the hard way about the consequences of deviating from an orthodox path. In the early years of this decade, President Recep Tayyip Erdoğan insisted the Turkish central bank adopt the unorthodox idea that lower interest rates bring down inflation. He described high rates as a “tool of exploitation” and his “biggest enemy”.

The results were ugly. The official CPI inflation rate topped 85 per cent in 2022, at a time when it was at roughly 10 per cent in most European countries. The annual rate only durably fell below 40 per cent this year.

But well before 2025, Erdoğan did what populist leaders find surprisingly easy: he performed a complete economic U-turn. After his re-election in 2023, he changed the central bank governor (again) and declared that, “with the help of tight monetary policy, we will bring inflation back down to single digits”.

Being central bank governor in Turkey is precarious. The incumbent, Fatih Karahan, is already the second person to hold the role since the switch to orthodoxy.

Brandishing his doctorate and long career at the New York Fed, Karahan’s words sound as much like the normal group of central bankers’ as any other. Presenting the latest inflation report, he told an audience that “tight monetary policy is gradually yielding results”, with inflation falling and the labour market cooling in an orderly fashion without descending into recession.

This is quite a change from the period since 2019, in which inflation remained stubbornly high and the price level rose to almost eight times higher than on the eve of the pandemic.

Anyone who is familiar with the US and UK inflation debates would find echoes in Karahan’s recent speeches. The difference is that the numbers are just larger.

In the latest inflation data for November, published last week, headline annual inflation fell to 31 per cent, from 32.9 per cent in October. Slowing growth in food prices was the main reason for the drop, while underlying price rises did not moderate much. In fact, disinflation has been slowing this year and, barring extraordinary December data, the central bank will overshoot its end-of-year target of 24 per cent by some margin.

In short, Turkish inflation is stubbornly persistent.

According to Hakan Kara, former Turkish central bank chief economist and regular critic of the country’s monetary policy, monthly core goods inflation and services inflation rose in November. He thinks the economy is becoming more predictable and that the central bank is optimistically cutting rates too fast.

The central bank has its final meeting of the year this Thursday where it is expected to cut rates by another percentage point — or even a little more.

One of the more encouraging signs that disinflation is continuing, even if more slowly than hoped, is that inflation expectations have been falling. Market participants, businesses and households all expect lower inflation in the year ahead than they did one year ago.

I would note that all the forecasts — even those of the most optimistic market participants (who have a modal forecast of between 22 and 24 per cent) — are higher than the central bank’s latest of 16 per cent. The modal forecast of households is over 40 per cent.

The main lesson for Turkey, then, is that it might need to slow monetary loosening in 2026, because countering persistent inflation is a long slog.

The main lesson for other countries is that you generally pay dearly for putting wishful thinking into practice.

What I’ve been reading and watching

• The FT’s annual global boardroom series of webinars starts today and will feature interviews with Bank of Japan governor Kazuo Ueda, European Central Bank president Christine Lagarde and Bank of England governor Andrew Bailey.

• The US Treasury has been talking one-on-one to market participants about the potential next Federal Reserve chair. Several people have told the Financial Times there were concerns about the frontrunner, Kevin Hassett, for being too dovish and close to President Donald Trump.

• India, the world’s fastest-growing large economy, has cut its interest rate from 5.5 to 5.25 per cent as it currently enjoys both booming growth and falling inflation.

• Writing for the IMF, US economist Claudia Sahm argues that alternative data will not supplant official figures, but that policymakers need to use insights from both.

One last chart

We have been doing some more work with the FT archive and large language models over at Monetary Policy Radar, this time constructing a geopolitical mood index using textual information from more than 3mn articles since 1982.

The core technique is to score the sentiment of each article, then weight it using a separate model according to how close the text is to a geopolitical centre of gravity. My colleague Joel Suss has described this in much more detail. This is now updated daily with the latest FT content.

The index successfully picks out wars and sudden rises in geopolitical risk. More than that, however, it shows increasing tensions over time via a steady decline in FT article sentiment. We believe this is real, rather than a sign that news writing has changed. It is notable that there has been another small shift down since the rise in populism after Trump’s first US presidential victory and the Brexit referendum.

This is ongoing work and Joel and I would love to hear your thoughts. Email Joel (joel.suss@ft.com) or me (chris.giles@ft.com).

Central Banks is edited by Harvey Nriapia