Well, as a result of the current economic situation in Turkey, the CBRT has quite expectedly left the interest rates unchanged again. The fact that the Central Bank is giving the impression that it let “things” to luck vis-à-vis the pressure of the markets, its rapidly diminishing reserves and the rapid deterioration of inflation expectations do not allow exchange rates to go down.
Based on the CBRT’s press statement, one would assume that the Monetary Policy Committee (MPC) members either cannot “read” what is happening abroad or think that every development that occurs somehow work in their favour. The statement also implies that the Central banks of developed economies do not implement a monetary policy that supports GDP growth, which is, I think a quite unfortunate thing to say.
A few months ago, I was thinking that the decision makers at the Central Bank were implementing the current monetary policy within political imperatives. The statement released following the MPC meeting seems to indicate that their decision was based on the current economic developments abroad, which also makes me think that the Central Bank will search for alternatives outside of science and the practice of economics.
“Is It a Matter of Preference?”
For a long time, I have been in contact with colleagues who support the decisions of those who handle the economy in Turkey. And I am also against the argument that “the west side of the Atlantic is always right”. However, we should not let this approach distract us from scientific rationality. We have already passed the point where we could solve this problem by hiking the interest rates but embracing the approach of “every argument that cannot be proven false is true” would just be choosing the easy way out. It is useless to resort to the argument that “We made the right decision, otherwise it would have been worse” following every action that was wrongly taken.
The dollar price in Turkey could be kept below TRY 16 and obviously great efforts are being made to prevent it from hitting TRY 17 today. On a live broadcast I appeared after the interest rate decision, I said: “Wouldn’t it just be easier to let the monetary policy do its thing? Now, we will all have to price the price”.
By “let the monetary policy do its”, I mean the absolute necessity for the Central Bank to change its course in order to “make Turkish lira popular again”. We should know by now that there is no guarantee that we will be able to reduce inflation by raising interest rates, but it is also not possible to ensure growth through abundant money and low interest rates. “Slowing economy or extreme inflation?” I don’t think anyone in their right mind would prefer a raging inflation.
