The week kicks off with the much deserved pride we felt for the record exports data and the inflation estimates.
ICOC retail price index released prior to the announcement of inflation statistic seems like it has risen by 1,29% in March, which sadly doesn’t help March CPI expectations take a positive turn. However, as I have mentioned many times in my previous reports, the basis effect is expected to turn negative as of the second half of the year, which means, if April-May-June inflation doesn’t turn to be lower than expected, this year may unavoidably end with double digit inflation. So, we better keep this in mind when making decisions.
Ankara starts to deliver statements on high interest rates again. I know that I am repeating this same old thing over and over again, but believe me this won’t be the last. Banks is not the reason behind high interest rate. The real reason is excessive public expenditure and the fact that Government withdraws extra money from markets. Not to mention, ever-increasing inflation, country and sector-based risk. Also, Fed’s latest rate hikes as well as high LIBOR rates are other important factors affecting foreign fund cost of Turkey who currently suffers from low national savings.
In my estimation CBRT has one more interest rate move to make, which is simplification. That is to say, the “I won’t hike rates” manoeuvres based on multiple costs of funding will no longer be valid. The time has come for CBRT to adopt the weekly overnight interest again, which is the internationally recognised policy interest rate. That “interest rate corridor” thing has become boring long time ago.
“What should be the duty of Turkish Central Bank?”
From now on, CBRT should provide enough funds to applicants if they can offer reasonable collateral. Central Bank has pushed it to the limit by tightening the market up but it was not able to prevent exchange and interest rates from rising. If we asked CBRT about that right now, they would say, “Things could have been worse, be grateful”.
For same reason, Ankara always gives the same response when I point out that current account deficit hits record highs despite high import tariffs, “Things could have been worse. You should be grateful”. As matter of fact, anyone can easily use this pretext for anything that can’t be proven true. But, there’s an intriguing question: “How things could have been worse than that ?” Sometimes I think about that too. After all, nothing so bad but might have been worse.
Every measure is taken for a reason, but, sometimes we need to see the things that have been sacrificed to get what we want, and be grateful for what we have.