Do not overestimate the power of Central Bank

My “One of the many meaningless actions of the CBRT” post about the CBRT’s latest rate hike sparked a heated debate on social media. As a matter of fact, I was criticizing them for taking too long to take action-which would be normally considered “brave” if it had been taken at the right time.

If the CBRT took a preventive action, which could help reduce the bad effects of exchange rates over inflation and other parameters, a 500 bps hike could have been avoided in the first place. Instead, all past and present administrations of the CBRT have chosen to make a series of nonsensical manoeuvres just to avoid hiking rates. First, they made people forget the policy rate, and then created the interest rate corridor and finally they removed the original purpose of the Late Liquidity Window. And there were two main reasons that led the CBRT to take these actions.

First, their “If there is high liquidity in market, everyone will buy Dollars” obsession… Secondly, they made people forget about the policy interest rates out of the fear of being criticized by the leaders. So, to gain sympathy, they did their best to avoid hiking rates. Their meaningless obsession and efforts did no good neither to them nor markets. Sadly, Turkey had to pay the price for CBRT’s delayed actions or hidden interventions.

“Don’t let us shoulder the burden alone…”

Is the CBRT only one to blame? Of course not… Monetary, Financial, Economy and Foreign Trade Policies are a mess for a long time now. High Indirect Taxes and Import Tariffs lead to high cost of living and ultimately high inflation. But, for some reason, we are looking for the answers (the cause of rising prices) elsewhere. Foreign Trade Deficit and Current Account Deficit keep hitting record highs! But, we choose to make ourselves proud with our export growth rate. We rank among the top developing countries with a very high ratio of private sector debt stock to GDP. We fail to increase the value-added. We are deeply and solely engaged in the construction business. No one is happy about the present agricultural policies, neither producers nor consumers. Food prices are constantly rising, and the list goes on and on…

And the funny thing is that we expect rates hikes will solve everything. If the CBRT administration thinks they’re mighty enough to solve everything by a couple of hikes, they are terribly mistaken. If they don’t, I invite them to come out and speak, and stop letting us to shoulder all the responsibility alone…