As the moment approaches…

The Fed is to release its own on next Wednesday, right after CBRT interest rate decision, which is scheduled for Thursday. I must say that housing as well as automotive sectors are impatiently waiting for that moment, which is quite normal indeed since interest rates have direct impact on both sectors. I’ve been giving interviews to the media since the beginning of this week, making clear whether a rate cut will help construction industry breathe a sigh of relief. But, I frankly told everyone that it would not be very realistic to expect rate cut to rapidly bring positive impacts on construction and automotive industries. To see credit interest rates fall further happen, we might have to wait a little longer even though a rate cut will quickly affect deposit interest rates.

For a very long time now, banks and financial institutions have been floating their loans with high cost of funding. We have to take into account that they will take action depending on their funding composition and their cost after the highly anticipated rate cut. Accordingly, public banks will be expected to make compromises, which means if credit interest rates are to fall, it will be the public banks again who will light the beacon.

“Monetary and Fiscal Policies should work together…”

Home and auto sales hit a brick wall because of high tax rates and credit interest rates. If a rate cut is to bring a positive impact on loans, I highly expect this cut will also work as a boosting factor for both housing and automotive sectors.

On the other hand, sale prices bearing the burden of heavy taxation sadly alienate buyers despite rate cuts. Just yesterday, a couple of international students of mine were complaining about the excessive taxes on mobile phones. Cutting rates while simultaneously increasing tax rates doesn’t seem right to me to at all, in terms of coordination.

Over the previous period, on the other hand, government spending was growing larger while interest rates were increasing. We saw tax cuts but also an increase in the number of credit card instalments. In short, monetary and fiscal policies haven’t been working simultaneously for a very long time now.

So, once again, I’d like to emphasize that it would be quite unrealistic to expect rate cuts alone to enliven economy.

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