Without going into further discussion about the rights and wrongs of the monetary policy that is in place in Turkey, let me tell you what’s on everyone’s mind: the CBRT will lower interest rates.
It will be a long, laborious and costly process to recover the economic impacts of the earthquake. Given the circumstances, I fully expect the Central Bank to further decrease interest rates. I think the markets consider this possibility to be more likely, which they used to find unreasonable before the earthquake. As I mentioned in my previous articles, banks and credit card holders will benefit from a possible rate cut.
I do believe that record low interest rates will help heal the economic wounds caused by the earthquake. However, the attitude of the banks is very important here. If they try to sell the cheap funds that they had bought from the Central Bank with very high interest rates, this method will not work.
“Price Controls Are A Must.”
Finally, the long-awaited increase in public banks’ capital became a reality. I could say that inflation rate will remain high throughout this year as well, considering the low interest rates and loan campaigns. As I mentioned in yesterday’s article, Turkey will face low economic growth and high inflation in 2023. And this is the price we will pay to recover from the damages caused not only by the earthquake, but also by the practices that were in place before the earthquake.
Obviously, no one will worry too much about the inflation as the country is trying to heal the wounds of the quake victims. But, on the other hand, the market is now subject to strict controls following the earthquake. Now the elections are drawing near, I could certainly say that the Government will not allow abnormal prices, as it did last year, and that if necessary, will set price ceilings, including rents.
To be honest, it is difficult to distinguish between “opportunism” and “market conditions” in today’s circumstances. Most likely, the Government won’t even bother to tell them apart. Unfortunately, there is always the possibility that high inflation will quickly transform into hyperinflation in countries experiencing such disasters. So, we must be as cautious and watchful as possible.