Europe's sovereign-debt crisis now threatens Erdogan's economic successes. The economy was already in urgent need of cooling or the twin goals of price and financial stability would be threatened, said Melissa Ball, an economist at Lombard Street Research in London, in a report published on July 29. On Aug. 4, with the prices of Italian and Spanish debt tumbling, the Turkish central bank said the economy risked a slide into recession.

In June, the cumulative 12-month current-account deficit had more than doubled from a year earlier to $72.5 billion, the biggest gap since monthly records began in 1984, according to the central bank. The likely slowdown ahead, combined with falling oil prices, will bring about a "rapid and sizable" improvement in the trade gap, the central bank said.

The bank kept the benchmark one-week repo rate (the discount rate at which a central bank repurchases government securities from the commercial banks) at 6.25 percent from Jan. 1 to Aug. 4, when it cut the rate to 5.75 percent, an all-time low in the 88-year history of the Turkish republic.

Fresh Downturn
In keeping interest rates below the rate of consumer inflation, which stood at 6.3 percent in July, central bank governor Erdem Basci's objective is to keep the domestic economy healthy while the developed world enters a fresh downturn. To keep the local market in check, he's hitting the forces he believes are fueling growth: the country's lenders.

Basci has more than doubled the amount of money that banks are required to set aside as reserves, reducing the pool of cash available to lend to local consumers and businesses.

Even though the strategy is likely to reduce bank profits this year by as much as 20 percent, according to the Banks Association of Turkey, it hasn't yet slowed growth. "In the end, interest rates are too low for a country like Turkey," says Lutz Roehmeyer, who helps manage about $17 billion at Landesbank Berlin Investment GmbH.

Eoin Treacy's view Erdogan's efforts to rewrite the constitution signal deteriorating standards of governance and more than a whiff of authoritarianism. It is true that Turkey has experienced a remarkable decade where growth improved, unemployment dropped, the stock market advanced and the currency was relatively stable. However inflation is now stubbornly high, the trade deficit is close to a record and the central bank's decision to leave negative real interest rates intact risks stoking additional inflation. Growth at all costs appears to have been chosen over a more measured approach.

The Turkish Lira is a victim to the central bank's policy of maintaining negative real interest rates and has fallen sharply against both the US Dollar and Euro. It is deeply oversold in the short-term but significant evidence of base formation development will be required to indicate investor confidence is being rebuilt.

The ISE National 100 Index peaked in October, with a large weekly key reversal, near 70,000. It found support in the region of the 200-day MA from March, but the subsequent rally failed to reach the previous peak. It subsequently fell below the 200-day MA and broken emphatically lower earlier this month. Prices have stabilized near the psychological 50,000 but a sustained move above 55,000 would be required to indicate more than temporary support in this area.