Some leaders choose to put suggested solutions into action either prematurely or they choose to delay them just show that these solutions are mistaken. Thus, they think that they have freed themselves from the pressure, but in fact, the truth remains the same. Premature or delayed actions always bring heavy price. And it was us who had to pay the price for the CBRT’s last decision.
As constantly reminded by a number of experts, including myself, the last chance for embarking upon a policy simplification was the Monetary Policy Meeting in April. However, with an attempt to demonstrate “autonomy”, the Central Bank has laid heavier burdens on everyone’s bank, especially the banks’. With their first clumsy decision, they increased the cost of funding by 75 bps, and after the mid-term meeting held in a mad rush, they hiked rates by 300 bps.
“It’s more important to restore impaired morale…”
Why the policy simplification decision was more effective, or at least more promising, than the others? For two obvious reasons…First, the money market will become more functional and more appealing, second, it will become more simple and easy to understand.
For a very long time, Central Bank administrations continued to create new, but confusing, instruments just to avoid hiking rates, which eventually led to the deterioration of the Late Liquidity Window serving an utterly different purpose. And finally yesterday, CBRT decided to go back to the internationally recognized standards, thus freeing us from our task to explain CBRT’s juggling with words and instruments to foreign colleagues.
I’m telling you once again. CBRT should have gone for a policy simplification in April meeting (at the latest). A 375 bps increase in the cost of funding and USD/TRY’s climb from 4.10 towards 5.00 was the price we had to pay. You can always recover from lost money, but it’s harder to restore impaired morale.