I would not have thought that I would say this, but, contrary to everyone’s expectations, the Central Bank of Turkey made a rather modest decision about the interest rates, emphasizing, “You don’t need to impose your opinions on me! I will do what I know”, in its careful determination. Including international institutions, no one has not fully understood what the Banks knows yet, but we are patiently waiting to find out.
The decision also involved the following message: “For now, I will not make a move that will make the exchange rates jump again”. We all know that after the earthquake, there was a major decline in central bank reserves. Apparently, the CBRT administration has finally understood that it will be quite difficult to keep the exchange rates under control until the elections, which are likely to be held on 14 May or 18 June. They say that the mill does not turn with the transport water.
“Interest Rates May Continue to Fall.”
So, what will happen next? According to some experts, “The Central Bank will no longer cut rates,” but I do not agree with them. The CBRT will likely lower rates by a further 100 bps next month while simultaneously controlling the exchange rates.
These cuts may continue until the Central Bank achieves a policy rate of 6.5%, which was in effect in May 2013, 10 years before the elections.
If the election takes place on the 14th of May, the CBRT may cut interest rates by 100 basis points twice until that day to reach its target. On the other hand, if the election takes place on the 18th of June, it may introduce three gradual reductions.
You may ask, “Who benefits from these interest rate cuts?” Well, credit card holders and banks. As banks have the opportunity to offer their customers cheap money, the cost of credit card spending decreases.
So, the Turkish Central Bank does not give up on its interest rate policy, the rationale of which is not entirely comprehended by anyone. The only logical grounds I can think of for the latest rate cut is the massive earthquake that hit multiple provinces in Turkey.