Don’t Be Surprised by The Policy Rate Anymore.

Don’t Be Surprised by The Policy Rate Anymore.


The Central Bank made its decision. The policy rate is now 17.5 %. Inflation is around 40 %. But we have to think before making a comment.


First of all, it is too late to increase interest rates to keep exchange rates and inflation from spiralling. Pushing the policy rate up to 40% now might cause quite a lot of damage and unexpected side effects. The current economic conditions in the country are not suitable for doing otherwise. As you may remember, I had suggested many times in my previous articles a gradual return to rational economic policies.


Unfortunately, some of my colleagues think that higher interest rates are a remedy for all economic difficulties. But it is not. We lowered interest rates when they should have been raised, so we have missed that chance. Today, the Turkish economy is struggling with a great number of problems. And increasing the cost of funds alone to solve them will definitely not suffice.


It is quite strange that decision makers and economic experts do not actually know the doctrines of the capitalist system even though they live in it and constantly repeat the same theses over and over again. Decision makers intervene in all pricing practices that should actually be formed through supply and demand, and our colleagues still offer them suggestions concerning what they should do about interest rates. Not one of them thinks of saying, “Let the market rules do their job. Do not interfere if there is no unfair competition. Markets will eventually find their own balance”. Those with right-wing ideologies like to constantly intervene in everything, while those with left-wing ideologies believe that a free market economy is not good in the long run. So, although both sides seem like they are opposed to each other, they are in fact pro-intervention. The rightists think they can solve economic problems by lowering the interest rates and the others think that rates have to be raised for a better economy.


The Turkish economy worsens day by day because of those who do not believe in a free market economy yet praise some elements of the system when they suit them and run-down other elements they do not like. When you say, “Allow the Central Bank to freely determine the monetary policy” and then you say, “I am against privatization”, then you do not know what economic liberalism means. Likewise, supporting the private sector to grow and then expanding the public sector also means not believing in a market economy.


Instead of all those constant interventions, why does the government just say, “I do not want a free market economy. I want state capitalism. I want to control the markets constantly. I want to determine the interest rates. I do not want a central bank. I want to have just a monetary board to manage the exchange rates”, and save us all?


I have understood why I cannot gather supporters when I say, “Let’s go back to free market principles,” but those who still make micro and technical comments in a country where liberal democracy is about to die and where people think that democracy is just about holding elections have still not understood that the circumstances had changed.