An analysis of CBRT decision…

I was reading the comments posted on social media while I was preparing for the live broadcast last Wednesday afternoon. A comment suggesting that CBRT would make a symbolic cut this time has literally caused me burst into laughter. I wonder what they were thinking when they made such a comment.

Just then, CBRT Monetary Policy Committee released its decision, reducing its policy rate from 9.75% to 8.75%, and my phone started to ring. I tried to calm down people who were clearly mad about the decision.

We are going through times where people do not care too much about the interest rates because of the coronavirus pandemic. So, this rate cut doesn’t seem really surprising to me. CBRT’s decision is indeed understandable especially now when all other central banks around the world are giving their best efforts to keep the economy afloat.

I think we should be calmer and more sensible knowing that Turkey, who rejects IMF funds while instead trying to enter into swap deals with other countries, hasn’t closed these deals yet.

“Not an option but a necessity…”

Turkish Central Bank is trying to keep economy alive through both money creation and interest rate adjustments. If you ask people, ordinary people trying to earn a living, about whether they want interest rates to be 9.75 or 8.75, you know the answer you’ll get: “My priority is to survive. None of these matter now”. So, we should set our priorities straight under these difficult circumstances.

In short, the world is going through a period where governments try various solutions to prevent economy from collapsing. I do not think no one will care about the possible side effects arising out of a rate cut during such hard times. We’ll have plenty of time to talk about these details later. As a matter of fact, exchange rates too gave a limited reaction to the rate cut. So, I think, instead of worrying about the potential adverse effects of the rate cut, we should rather focus on whether rate cuts will help the economy survive or not.

Let’s also not forget that drastic rate cuts may not always cause the expected side effects under specific circumstances. No one can say for sure if rate cuts will actually help economy improve. But the economy administration must do everything in its power. As far as I can see, the only thing Turkey can do for now is to keep paddling its own canoe while CBRT continues rate cuts.

Therefore, CBRT’s decision must be considered a necessity, rather than an option.