The state of “becoming numb after years of being in chronic emotional and physical pain” has been explained decades ago in “The Book of Disquiet” by Fernando Pessoa: “…after all, indifference is born out of excessive suffering.”
Every time I read the book, I can’t help but thinking, “Is this how we are now?” Here’s what I mean: I conducted a poll on Twitter on Thursday last week. The options for the poll were:
What will the Central Bank do?
- Keep the rates stable
- Cut the rates
- Hike the rates
- Not interested
More than 15,000 people participated in the poll in about four hours and quite interestingly, the “not interested” option remained the second option for a long time. I don’t know if people no longer care about anything interest rate related or if they have marked this option because of their daily life problems. By the way, the option “Keep the rates stable” was the most popular answer by far, despite the messages from Ankara.
A year ago, when the economy administration said, “We will not increase interest rates”, it really meant “We will not be able to cut them”. That’s why the policy rate remained stable at 14% for a long time despite the high inflation. According to the poll results, the majority of the respondents do not think that the CBRT will cut the rates despite its brave statements and the opposite trends in the world.
There were comments that there will be an abundance of foreign funds in the summer as money will come from the Gulf countries, I have to say that these are too optimistic expectations. Saudi Arabia cannot make any decision on its own regarding any country in the region without the knowledge of the United States. It is certain that the relations have took an upward turn, however it is also said that the U.S. gave a message to the Turkish government through the allies. According to rumours, they will not allow any move that will relieve Turkey until the elections.
Rumours are circulating that the President Erdoğan will make changes in the cabinet before the elections and will appoint new people to the ministries who can help strengthen relations with the West.
The CBRT’s decision yesterday showed that the current policy will not be changed. However, this policy will not help us eliminate the side effects of selling the exporters’ foreign currency or the reserves created through SWAPs.
About the exchange rates…
I made numerous analyses of our “currency-indexed life” in my previous articles, providing examples to illustrate that we lead all aspects of our lives-tuition fees, rents, travel expenses, sports and so on-indexed to foreign currency.
I have repeatedly said that even sectors that use domestic inputs have to pay foreign currency to buy supplies, not to mention the rapidly rising prices in exchange rates in all sectors. The prices of a lot of different products, including computers, mobile phones, cars, coffee, agricultural products, even needle and thread, are constantly increasing because they are either imported or are indexed to global prices. Households and businesses cannot protect their monetary resources against these soaring price increases. And as a precaution, they either put some foreign currency aside, or they stock up on goods which prices are constantly rising. No matter what anyone says, stockpiling goods is more harmful to the economy than saving foreign currency. However, the recent decisions of the government may unfortunately lead business and individuals to do one or both of those things!
For a week now, the economy news channels have been featuring the analyses of companies traded in the stock market that will be affected by these decisions. Buying shares of companies that have set aside foreign currency for hard times or have stable export income have always been a popular investment option. The decisions about such companies’ foreign currency revenue from export activities and the decision issued last Friday will drastically change this preference.
I am guessing that the majority of these companies will devise new mechanisms to keep their foreign currency earnings abroad. If the government decisions on foreign currency become tougher, we might experience practices such as “official rate” and “market rate” that have been tested in different countries but have not worked.
The Decree No. 32 regulating foreign exchange transactions had originally been providing flexibility to the government and the market. However, because of many different amendments to the legislation, the flexibility of foreign exchange regulations remains only on paper.