A CBRT classic: I can’t stop it but I can slow it down!

Mainly focusing on the latest FX developments with Işın Çelebi, Murat Sağman and Ahmet Kasım Han, we held an economy talks at Altınbaş University’s Gayrettepe Campus last evening. Here’s the result:

CBRT and economy administration could have handled this matter in a calmer, more phlegmatic manner. However, the actions they took were almost encouraging to those who traded away in a state of panic on last Friday. I must admit that I can’t blame the government too much here as it’s only natural that a sudden rise in exchange rates obviously would displease people given the suggestion to intervene before things get more complicated.

Last night, Murat Sağman proved me right when he said, “Private sector can’t possibly stand another FX rate crisis!” That is to say, it’s quite normal for the government to get concerned when both citizens and business world feel highly sensitive about the exchange rate rise. However, CBRT becoming a part of this panic wave is just not appropriate at all.

Rise of the dollar on Friday occurred in all global markets, not just in Turkey, which was affected by it in a worse way than other countries because of its fragile economy. There was, however, no need to panic. We surely could have been better now if it weren’t for the recent decree raising withholding tax on foreign currency bank deposits and CBRT decision to suspend one-week repo auctions for a period of time. And to top it off, we were hit by a swap move. The result: We turned a problem that is not ours into our own crisis.

“Education is a must but experience is key to success…”

I don’t mean to offend anyone but the reason underlying the emergence of this problem in the first place is that the young professionals who lack 1994 and 2001 experience were appointed to top positions a little too early. The same mistakes were made during the previous crises. It was clearly understood recently that it was just not possible to stop exchange rate rises by tightening TRY supply, but seeing the CBRT makes the same mistake again proves once again that education is a must but experience is key to success.

Anyway, I hope today’s young executives will learn from the past mistakes and avoid taking the wrong actions. But there’s something very important they should know: In countries like Turkey, enacting decrees to fix exchange rate movements is like hitting your head against a brick wall.

We owe the past stability in TRY to an open and transparent government, not to CBRT interventions. We had EU & reform priorities and goals. But most important of all, Turkey had a decent narrative.

In conclusion, no one, in the history of Turkish Central Bank, was able to stop exchange rate rises. That’s why CBRT administration knows perfectly well that it has got no other choice but to slow down FX rate rises. My humble suggestion is that they should remain calm and suggest the others to handle problems in a calmer, more phlegmatic manner.