2020 will be the year of toughest decisions…

Two important rate decisions will be released in the second week of December. First the Fed, and then CBRT will announce their decision. But, for more critical decisions, we will have to wait for 2020.

As I have often mentioned in my previous reports, both the U.S. leader and Turkish leader had stated their concerns about rate cuts several times. If the Federal Open Market Committee cuts rate again, this would make a lot easier for the CBRT to announce a new rate cut.

“There is no more room for pre-loaded rate cuts” CBRT Chair Uysal said after the last cut decision, which means CBRT will cut rates by 100 or 15 bps at the very most. I know that everyone is looking forward for single-digit rates, but we still have a long a way to go. My guess is that CBRT will first want to see what happens in 2020 inflation-wise and then make its decision, because, inflation rates may go back to double-digits anytime due to base effect.

“What happens now?”

As a matter of fact, CBRT’s new executive team has not faced political challenges yet. Since the first day they took office, they have been taking the right steps, using the opportunities offered by the recent downward trend in inflation. A huge achievement indeed… But, now the real work begins.

Government would soon suggest or force CBRT to continue with rate cuts in order to prove their “lower the interest rates lower the inflation” thesis. However, any attempt by CBRT for reducing rate to single-digits just because of inflation slips to double digit would mean a huge risk, not just for the CBRT but also for Turkish economy.

Over the next period, CBRT may have to build their relations with Public Banks and Private Banks on a dialogue, and inform government officials, particularly Mr. President, about possible rate hikes or cuts in a timely and proper manner.

I do believe that Turkey took all the right steps towards economic improvement. The next steps, however, must be taken very wisely and carefully so that we can maintain the improvement we have achieved.

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