I did not expect that the CBRT would make any surprising decision about the interest rates. As the unforeseen steps by the Central Bank to break rational expectations often manifested as disruptions to the markets, it was almost certain that interest rates would not be increased. If the Central Bank were to make any opposite decision, we would have already seen plenty of foreign currency sales in advance.
Since there was no positive movement in the markets, the CBRT would either cut the rates or keep them stable. When the Central Bank wants to make a surprise, the markets already stir in advance. If the CBRT would want to create a real shock, no one would know about it beforehand. For example, the decision of 22 October 2020. Everyone was expecting a sure rise in interest rates, but all hell broke loose when the Central Bank did not touch the rates and left them intact at 10.25%.
Today the Central Bank avoids making any rate move. However, there are serious matters ahead of us in the coming period, and we cannot fend them off without implementing a properly functioning monetary policy. These serious matters that need strong and effective handling include:
- Food Crisis
- Energy Crisis
- Global Recession Risk
- FX Risks
- Socio-Political Side Effects Caused by High Inflation
- Diplomatic Tensions and Conflicts
- Early or Snap Election
No concrete and visibly effective steps have been taken in the fight against inflation so far. Only the public and private sectors keep increasing wages in order not to protect the employees from ever-rising inflation. We see that low interest rates cause an increase in exchange rates and stocking up tendencies, which keeps inflation alive. That is to say, not only the government does not take any strong steps in the fight against inflation, but there are also price distortions caused by low interest rates from previous periods. I think it is not fully understood that the Central Bank will not be able to solve all these problems by selling foreign currency and Turkish Lira. It even causes the conditions to worsen further and further by doing so.
One should know their own faults before blaming others for theirs
In fact, I can say that the reason why all this happened was the “let’s do a project, let’s find a slogan” rush in private and public sector. We forgot our main jobs because of campaigns, which did not yield any positive results in terms of economic efficiency but were polished with splendid ceremonies. The government and the private sector have embarked on very costly journey by spending their funds ruthlessly just to increase the numbers of some dubious works, instead of acting rationally and prudently.
Bedazzled by the glory of fast growth, we did not care about the quality of human resources, and today we suffer the consequences. We are confused about efficiency and quality, and science cannot help us because we use data as it suits us. As a result, we are gradually moving away from reason and logic.
A friend of mine recently said, “My love is based on logic”. “You may be trying to find a reason for your love, but not every reason is logical” I replied, correcting him. Since we do not have an exact understanding of concepts, we waste time in discussing and fall into some sort of philosophical void. This applies to our famous and never-ending debate about interest rates, exchange rates and inflation. Therefore, I think it would be useful to first address the basics of the problems.
Turkey was experiencing a monetary rise from 2002 to 2013, but its vulnerabilities that no one was interested in or wanted to deal with at that time are pushing, tiring, and wearing us out today. I, on the other hand, still haven’t lost hope. As long as this nation does not stray from the scientific path.
