Yes, I had a lot of spot-on guesses but this isn’t something we should be proud of since as the way things went, I didn’t expect the opposite. I told you that no matter how further rates go down; exchange rates would still remain stable. I honestly don’t know what arguments people offered considering that they do not agree with me.
As a matter of fact, I expected rates to hit 20%, however, a rate cut to 19.75% percent by the CBRT isn’t surprising either. For the past two weeks, I’ve been pointing out that CBRT’s rate cut would not bring any impact on exchange rates. My expectations were confirmed, thus exchanges rates remained intact despite expectations. The reasons I was able to make spot-on guesses is that I also monitor markets on the streets, I listen to the people on street, not just keeping track of market affairs on a computer screen. I had the opportunity to observe that those who were waiting for exchange rates to go up spent their last dime on foreign currency, those who wanted to buy foreign currency, on the other hand, didn’t have enough Turkish liras. All of this made me realize that central bank wasn’t exerting pressure on people to make them buy up domestic currency; instead, it was all about selling pressure. That’s why I’ve told you that exchange rates would not rise as expected especially after the CBRT decision, but they would show a very short-term upward trend and then drop further. And this was exactly what happened.
“Credit interest rates will fall even slower”
Let me tell you that credit interest rates won’t fall as rapidly as expected. I, however, can guess that deposit rates will show rapid decline. Decline in credit interest rates, on the other hand, will take longer time, led by the public banks. And then, I strongly expect banks and non-bank financial institutions to decrease their credit interest rates so as to keep their loyal customers. But, as I’ve said earlier, this will take some time.
First of all, CBRT will not work miracles by cutting policy interest rates. Such courageous step shall be taken by fiscal policy officials as well, because tax rates are so intimidatingly high. Interest rates continue to rise unless the government tightens its belt.
If government wants to achieve desired permanent outcomes from rate cut, then taxes on essential goods and services must be reduced to reasonable levels. Government tried to implement this policy before but sadly failed to make it a permanent thing. Taxes on essential goods and services, including fuel oil, communication, heating (natural gas), electricity, and transportation and so on, must be lowered as soon as possible. The Government, however, doesn’t seem very eager to do it as it collects large taxes from the man in the street. The institutions that sell us these essential goods and services will never be able to create any added value as long as they keep functioning like tax offices. As a consequence, people will have to face interest rate rises and high unemployment once again.