Reality is the only thing we need…

Reality is the only thing we need…

 

We do not get surprised at anything anymore, but the decision of the CBRT was indeed a surprise for everyone. I believe that economists will be able to evaluate the political situation as long as they are concerned about what everyone will do, instead of wondering what to do with the CBRT rate decisions.

Realising that the FX based deposits’ scheme no longer works, the Central Bank executives have finally decided to take some responsibility. As we all know, the recent downward trend in the exchange rates are being artificially accelerated. Everything would have been better if people were not made seem like they are selling foreign currency out of panic.

 

Apparently, the tactic never changes no matter who runs the country’s economy. This burning ambition to manage perception rather than managing the market is the cause of many problems. Yet, there is one positive aspect to it: in the past, foreign currency was sold to support ostensible decisions. Now, it is now being sold to support the right decisions. Still, we have a risky road ahead.

If banks do not offer a satisfactory interest rate to convince depositors to put their liras in savings accounts, some might want to take advantage of declining foreign currency and buy some more. On the other hand, the government is expected to take some steps need to satisfy the exporters and those engaged in foreign currency earning activities. Otherwise, our current account deficit may increase even further.

 

So, the CBRT’s next decisions are be crucially important. If banks do not offer a good interest rate on TRY deposits despite the decline in foreign exchange rates and the rise in policy rates, public banks will have to start offering that to lead by example.

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