Fun is Over: Rate Decision Is Coming!

Fun is Over: Rate Decision Is Coming!


As predicted, the social media buzz about the CBRT has come to an end as of yesterday. Now the markets are focused on the rate decision to be released on Thursday.


Considering the discussions that have been going on for a week, the Central Bank may hike rates again by 250 bps so as to maintain its reputation. At least, this is what markets expect them to do.


Recently TurkStat said “Surveys tell us that people’s perception of inflation is higher than measured inflation.” Eurostat and the European Commission as well have conducted similar studies. In EU, perceived inflation is also higher than actual inflation, varying from country to country. I had emphasized this problem many times in my previous reports and two years ago I had called out the CBRT for not undertaking such a study at the time. The then answer of the TurkStat was something like, “, Our data is correct. It is the people who perceive it wrong.”


Unfortunately, high inflation and high cost of living will not go away, at least not in the near future, so no one will have a reason to criticise the Central Bank if it decides to push policy interest rates up to 45%. In fact, former central always say, “Increase while you can so that you can have an easy opportunity to decrease it later.” Similarly, when it is time to cut rates, it might be possible to protect the real economy from being exposed to high interest levels by using the same method. Of course, there is no guarantee that these methods will always work.


Now that Hafize Gaye Erkan returned to Türkiye after a one-month break abroad, just before the Economy Coordination Board meeting, the campaign launched in coordination by different groups in the absence of the CBRT Governor has apparently ended. It looks like an initiative was planned from within and outside the Central Bank. And there is no denying that Erkan has played into the hands of those groups. But this initiative appears to have failed to change the public perception.


Surely tensions will be high at the Monetary Policy Committee meeting this Thursdayunder the chair of Gaye Erkan. The Vice Chairs must have given her, though not so willingly, a warm welcome like “Don’t worry Ms. Erkan. It could happen to everyone. Successful people often attract jealousy from others”. Yet there is no doubt that no one said to her, “We told you so!” Because I don’t think no one cautioned her in the first place about the dangers of leaving her seat empty as CBRT Chair for too long. So, my expectation that they will unanimously decide to hike interest rates on Thursday. And perhaps this way Ms. Erkan will understand that she should not leave her post unattended ever again.


Erkan knows that she is serving as the Governor of the Turkish Central Bank by the courtesy of the President Erdoğan. The latest incident has reminded everyone of this fact once again. So, regardless of what the rate decision may be, we will know that she already has the approval of the President.