Today CBRT Management is going to seal its own fate with one decision. Whether they go for a drastic hike or leave it intact, it will be an inevitable ending. If, especially, CBRT decides to hike rates by 100-200 bps, things will get way worse.
But, how did we come to this? The answer is simple. That’s because CBRT has constantly postponed the things that should have been taken care of last year. Everyone insisted for a policy simplification. CBRT said ok, but did not go for it. And when finally the task was done, it was too little too late. We suggested an immediate rate hike followed by a decrease. CBRT did not go for it either. The time chosen for the hike was so wrong that interest rates had finally reached a point where they can’t go back. Every step of CBRT has led to USD/TRY’s rapid and sure rise. We have never abstained from giving the credit CBRT deserved when, of course, it made things rights from time to time. Sadly however, CBRT management did not pass the test successfully.
Months ago, I was harshly criticized for stating that rate hikes will not do any good, things will get worse. Obviously I turned out to be right, but those who turned out to be wrong still walk and talk without the slightest hint of embarrassment. In short, consecutive hikes won’t help Turkey get through this trouble safe and sound. It is not possible for exchange rates to regain stability unless the Economy Administration takes assuring actions.
In conclusion, no matter what CBRT decides to do, the short or long-term outcome will remain the same. Turkey will face an economic slowdown, interest rate hikes and volatile exchange rates.
In order for a drastic rate hike can yield any positive result, overall reforms are urgently required in several areas including Treasury, Finance, Foreign Trade, Incentives, Public Spending.
“Last chance for the CBRT Management…”
I have been repeating the same old thing since almost a year now, “If you get criticized for everything you, then at least try to do the right thing”. Answering to someone else is easier than answering to your own conscience. Today, whatever decision Monetary Policy Committee takes, there will be no escape from harsh criticism. That is why I am calling out to hem one last time, “Do the right thing!”
The Committee shall make a decision based only on economic needs, without being influenced by what others think or say; and shall not listen to those who claim, “We are finished if rates do not go up” or “We are finished is rates go up” so as to make a sane decision keeping in mind its principal duties and responsibilities.
If “ensuring price stability” is among its duties, the Committee should then thoroughly think about which interest rate-related decision could improve stability.
If “ensuring financial stability” takes priority, the Committee should thoroughly think about which interest rate-related decision could help achieve this goal.
To accomplish all of this, members of the Committee will need to turn to their greatest strength: “Ability to be realistic”. This strength also involves a variety of good qualities like scientific aptitude, experience, strong analytical skills, and of course wisdom. Eventually, every step taken by the CBRT should reach its intended target.
Only a tiny part of the things I mentioned above could become reality since the last five years. So, although today’s decision may not be the last chance for the CBRT, but it is definitely the last chance for the managerial staff to be remembered for an admirable career.