I have two answers for those who asked me how big of an impact the Fed’s last decision brought into our lives.
First of all, I would like to let it known that a rate cut, which seemed utterly unnecessary considering economic parameters and was in fact carried into effect under political and market pressure, is an important opportunity for Developing Countries in terms of buying time.
Secondly, the fact that the Fed will end balance sheet reduction as of tomorrow should be welcomed with open arms in countries especially like Turkey that would barely stand on its own two feet if it weren’t for external funding.
The Fed decision following CBRT’s 425 bps rate cut indeed gave the markets a helping hand. As you all know, I always express my opinions in a frank and straightforward way. So, here’s my honest opinion:
“Exchange rates still show an upward trend…”
Although the direction of exchanges rates is mostly set by politics in Turkey, it is the economic parameters that determine the main trend. In other words, exchange rates will always be highly likely to rise unless comprehensive structural reforms are implemented to improve the economy. So, if you have foreign currency denominated debt, buying foreign currency when exchange rates tend to drop would be most reasonable thing to do.
I carefully listened to questions and answers at Chair Powell’s Press Conference, which helped me come to the conclusion that there was no economic basis for this rate cut. I also noticed Powell was trying hard not get into another argument with President trump while making his best to convince people that this rate cut was all about future risks and it had nothing to do with current parameters.
In short, this rate cut, which will serve as a short-term favour for the rest of the world, rather than the United States, must be accurately analysed by all developing countries, especially Turkey, and the advantage arising out of the fact that the Fed sets end of balance sheet reduction tomorrow must be turned into economic improvement by taking only the right actions.