Well, I must admit it had a bit of luck as well because the currencies of developing countries almost collectively appreciated against Dollar yesterday. When you work hard, you create your own luck too.
First, let’s the reason underlying this decision… As a matter of fact, the fact that a central bank has lowered rates wasn’t such a big surprise in the eyes of global community under the current circumstances. However, we are living in Turkey, and here in this country, each and every rate decision holds a great significance indeed, especially when financial experts and bank economists are constantly insisting that rates should be kept intact or even be increased.
Please take offense but I notice that arguments over the value of Turkish Lira are often supported by ungrounded facts, without taking developing country currencies into account. As it can be clearly observed, the currencies of other developing countries keep following an unchanged trend, except for the 2018 exchange rate crisis. Just like the times when Turkish currency tends to go into a negative territory sometimes, South African, Brazilian and Mexican currencies to can show a downward trend.
On the other hand, we can see that Turkey ranks 44th among 80 other developing countries in terms of showing resilience in coronavirus fight. Four main factors were considered in this analysis by The Economist:
- Government Debt/GDP
- External Debt/GDP
- Cost of debt
Turkey isn’t currently following a negative trend in terms of Government Debt. In terms of External Debt, however, frankly the situation seems quite alarming. As for the cost of debt, Turkey shows a relatively mild trend when compared to other countries. But when it comes to reserves, it hits the “red alert” level. So, I think we better avoid pushing the system too hard. I must say that, under the light of all these facts, CBRT decided on a very reasonable 50 basis points.
“Thinking outside the box requires strong infrastructure…”
Let me tell you a true story form the World War II. During the war, aircraft ground maintenance teams would work very hard to patch and bolster broken parts of war planes returning from attacks. One day, an engineer said, “If these planes can return safely to the base, it’s because of mechanical components that were not hit by bullets. That’s where you need to improve”. After a long undecided moment, they agreed that the engineer was right.
This story goes to show that maybe we need to take a different perspective on certain things to make them better or we need to start doing things differently to get better results. CBRT’s performance so far is within acceptable standards under the circumstances. But, isn’t there a formula that can help us make things better without putting in so much effort? Obviously, there is but first Turkey must start changing tone in domestic and foreign affairs.