Some Advice for Public and Private Sector
In light of the recent Central Bank incident, which I hope that the has been a lesson to everyone, let me offer some pieces of advice to investors and private sector:
– If you agree to be a guarantor for someone, do it because of the good and successful things they have done so far, not for the things they say they will do.
– Avoid saying things you might regret later.
– Sometimes silence is often more impactful than words.
– Knowledge and skill are two different things. Do not judge a person based on their educational background.
– Do not immediately vouch for anyone just because they eat or drink at the same places as you do.
And some suggestions for the bureaucrats in the government and regulatory authorities:
– Don’t do politics. Just tell the truth. You are not politicians.
– If you don’t have the courage to tell the truth, then don’t speak at all and focus on your job.
– Do not bend the traditions of the State. Be serious.
– Never use whatever resource that is allocated to you for anything other than work purposes.
– Of course, from time to time, you will have personal business that needs your attention. When you deal with your personal affairs, avoid leaving your post vacant too long.
– Always speak to the press in a manner that is worthy of your position.
– Know the legislation well so as not to allow anyone to get you to do their bidding.
Now, back to our main point:
Based on the latest inflation data, we could assume that it will not be easy to ease prices down due to the base effect and the persistent core inflation. These latest figures remind me of those who used to say, “If the inflation rate comes out at 3% every month, it will be 36% by the end of the year.” So, in line with this assumption, the average monthly CPI should be around 2.6% so that the target can be achieved, considering that January inflation had turned out to be 6.7%.
According to this fact, we could say that a “36%” inflation forecast will not be accurate and the target will be revised upwards after the election. But the interesting detail is that the deposit interest rates offered by banks are quite lower than the policy rates, which could lead depositors to buy foreign currency especially due to the concerns that have arisen after the appointment of the new central bank chair. Economic troubles might escalate if the new Chair continues to sell foreign exchange reserves and investors start purchasing more foreign currency.
Having anticipated such a problem, the Central Bank had issued a new regulation on required reserves, which, however, seems not to produce the desired effect since most banks offer an interest rate of 39% on monthly deposits. If banks continue to offer such high deposit rates despite the current inflation rate, we could soon witness a fierce competition among banks, especially medium- and large-sized ones, to attract depositors through high deposit rates. It is also possible that the Central Bank could be letting banks compete among themselves in order to help raise interest rates, but we also know that the sectors and businesses have always been able to reach a common position to calm the competition down.
Having accustomed to expressing their wishes quite openly during the very short term of office of Hafize Gaye Erkan, the International Financial Institutions tried to do the same with the new Chair yesterday. “We expect a 500-basis point hike this month or a fixed interest rate until the end of the year,” they said,
aiming to both force interest rates to go up and prevent a possible cut in summer. I do not think they entirely know who gets to decide these things.
Actually, what they suggest is not unreasonable, but the problem is that they have not yet learned that rational expectations regarding the CBRT do not work out the way they want them to. Well, I can understand their concerns since their customers have bought a significant number of TRY-denominated assets. However, high inflation and low growth are unacceptable to any government. When the time comes to choose between inflation and growth, the choice will obviously be the latter.
So, it is not difficult to guess that the CBRT will not miss any opportunity to cut rates.
