Guess when I gave all those warnings?

…The fact that the Central Bank is under huge pressure now with regards to rate hikes is an obvious indicator of the importance of the decision. Disagreement between the economy officials about the interest rates does not go unnoticed either. Some are strongly opposed to a potential rate hike, the rest, on the other hand, say, “We should avoid being so stubborn about this interest rate issue” even though they do not express their opinions openly at political circles”.

“Would an exchange rate rise or an interest rate rise put Turkey into trouble?” This is the question we should ask ourselves to begin with. I can almost hear you answer in unison, “exchange rate rise”. However, if you really think about it, you can realize that any potential rise in exchange rates would make Turkey’s already fragile GDP growth worse than ever. A though situation indeed…

Actually, we should ask ourselves the right question: “Would USD/TRY rise or an interest rate hike put the political leaders into trouble?” This is the key point. If the ruling party happens to think that exchange rate rises would not affect their voters in any way, it would then start putting pressure on the Central Bank for the implementation of a low interest rate monetary policy. If it thinks otherwise, then interest rates would go up and, in case of a GDP problem in the future, Central Bank will have to pay the price.

“My warnings are a classic now!”

As you might have noticed, Central Bank can never score a win no matter what it does. That’s OK because it is nature of such high-powered jobs. So, if the members of the CBRT get criticised for each and every move they make, at least they should try to make the right move.
The truth is USD/TRY’s rise will never stop unless domestic/foreign politics get calmer…”

I gave the abovementioned warning in January 2017. The report also included some numerical data which I chose not to repeat here. Thus it became an immortal piece which should be useful to us even after 50 years as long as we avoid reforming our current economic policies.

Just like the Essays of Montaigne… I think my warnings too will, (unfortunately!), be as fresh as tomorrow.

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