The basic approach of a state mechanism is to take back what has been extended after a while. For instance, thanks to the FX-hedged deposit scheme, banks are enjoying an unexpectedly big profit margin. However, when the banks were made obliged to purchase government securities, they had to transfer some of their profits to the treasury. In other words, the profit which was made possible by the government itself in the first place was then taken back through the sale of government debt issuances with interest rates far below the return.
Then, as the key policy rate kept dropping further, banks began to pay high interest rates to avoid losing their depositors, followed by a letter from the Central Bank full of warnings addressed to the financial sector. Those who deposited their money in FX-hedged accounts started to withdraw it one by one, worried about the ever-rising foreign exchange rates. So, depositors began buying stock options instead of lending their money to banks which eventually led Turkish stocks to hit record high levels. The crux of the matter is that nothing exists when it does not, and nothing does not die when it exists. It just goes hiding somewhere inside the system. Just like the monetary base that has quadrupled in over a year. There is a lot of money, but no one knows where it is. Surely, it must be somewhere, and the money given is always taken back.
“Who Benefited From the Single Digit Policy Rate?..”
Banking executives today are worried. They need funds since they earn their living by lending money. They would obtain most of the funds from deposits. That’s why they offered amazing bonuses and promotions to attract as many customers as possible. However, I don’t know if their target customer group is exactly people like us, I mean fixed income earners. Because most wage earners spend their salaries the moment they receive them, either on bills, loan repayments or other wants. I think banks will earn funds directly or indirectly through consumer loans or credit cards, maybe with the help of insurance sales or private pension schemes. I really wonder how this story will end.
So, policy rates have ultimately been reduced to single digits. The only good thing that will come out of this situation will be the cut in credit card interests as required by the law. Frankly, everyone is waiting for the government to launch the new CGF campaign, starting with the public banks. Otherwise, neither sectors nor households will be able to shoulder this burden until next May. I think it would be a little too early talk about the inflationary effects of this for now. We shall cross that bridge when we get to it.