To Those Who Can’t Read the Game…

To Those Who Can’t Read the Game…


Apparently, my analysis on the recent changes in the Central Bank have not been fully comprehended by all since I received some criticism asking me to be clearer. A nod is as good as a wink, they say, but let me try to make myself understood again.


The most important fact is that the CBRT management makes independent decisions only within the allowed boundaries, which means their monetary policy is ‘pre-set’.


– A new chair was appointed to the central bank following the general elections to help reduce inflation and  high cost of living, which had been caused by spending from FX reserves and low interest rates in the first place.  When Mr. Kavcıoğlu was removed from his role as the CBRT Chair and re-assigned as the Chair of Banking Regulation and Supervision Agency (BDDK), it seemed like a “temporary assignment” rather than a dismissal. That is to say, the government did not give up on anybody or its main course of action. Therefore, the new team would be able to make policy changes in line with the permitted limits.


– Mr. Şimşek’s first statement as the Minister of Economy referring to a “return to rational policies” clearly implied that previous policies were not rational, which was not a politically correct statement even if he was right. The fact that he complained about high rents and said he moved back to his mother’s house was a feeble attempt to empathise with people suffering from financial hardship. The communication mistakes he made one after another and his statements that had nothing to do with his role, such as “I have billions of dollars’ worth of deals on my desk”, were among the factors towards his undoing. And his final mistake was when he said “the new chair of the CBRT will be appointed upon my recommendation”. Şimşek did everything that should not have been done and said everything that should not have been said during his term of office.


– People’s discontent has grown amid a series of persistent mistakes by the Ministries of Treasury and Finance and the Central Bank. Meanwhile, not thinking about anyone’s lives but their own, market actors have offered their constant and unconditional support to Ms. Hafize Gaye Erkan, so have Türkiye’s largest corporations and top contractors. They all tried to ignore the former chair’s actions. Because ignoring was helping them to get financing from abroad as CDS premiums were continuing to decrease. In the end, the situation mounted to a level so unbearable that Kavcıoğlu was officially dismissed from his post even though he said that he resigned the chairmanship.


– As you may remember, market actors had immediately found new candidates to fill in the position of Central Bank chair and launched campaigns during the last month’s crisis. This type of reaction to a crisis situation clearly shows that they are incapable of reading the system. The government tends to prefer candidates who are rather modest and quiet rather, who can remain calm without criticizing the government or starting arguments, especially in times of crisis. Besides, you know what they say: “Walls have ears”.  You should be careful what you say, who you speak to, even where you speak since eavesdroppers are everywhere and your words might easily reach people  at critical positions. That’s why I knew that none of those candidates would be the new chair of the Central Bank. But it doesn’t matter if I was right because people are used to accepting the reports of foreign financial institutions as “absolute truth”. No one wants to listen to the truth when lies are nicer than the reality.


– Considering the current political climate in the country, people who are interested in a career at government or a regulatory authority should already know that, during their office, they will not be able to fully display their professional skills and abilities, they will not be allowed to act in total freedom, they will have to constantly negotiate with the ruling party, and that there will be challenging situations that they will have to handle. Accordingly, people who are appointed to such positions are not expected to bring changes but to preserve the established order and carry out difficult tasks on behalf of the government. Therefore, you would be deceiving both yourself if you expect them to work miracles. Let’s not under- or overestimate people who perform the assigned tasks as described in government’s policies and procedures. While some people are “dutiful”, others are “ambitious”.  High positions are sweet, and even those who are heavily criticised do not want to leave their posts and continue to remain in office as long as they can or are allowed to. A


So, based on these fact, I think we could say that the newly appointed CBRT chair will continue to follow the government’s policy which was determined after the general elections, he will try to bring the exchange rates under control, not the interest rates, in order to suppress inflation, he will make some changes in the banking industry, and he will take into consideration the circumstances that will arise after the local elections, before engaging a real fight against inflation.


A businessman asked me on the phone “what happens if they cut interest rates? “immediately after the appointment of the new chair. I said, “It will be good for you, but not for people who take out loans from abroad.” If the new economic team tries to cut rates not before seeing any sign of a potential decline in inflation, exchange rates will have difficulty remaining stable and will climb up again. All efforts will be gone in vain.


In conclusion, the inflation rates released today have shown that extravagant statements such as “inflation will eventually not be able to withstand gravity and will fall” are just meaningless words. Apparently, the countdown has begun for the economic team, which is expected to bring in external funds but has not been able to do it yet.