We are surprised yet not shocked…

Yesterday CBRT made a surprising decision. However, it wasn’t surprising enough to startle us out of our minds; because “surprise” and “shock” are two very different concepts. But, these two words are often confused with each other.

“Surprise” describes an unexpected or astonishing event, fact with positive or neutral consequences; we use the word “shock”, on the other hand, to picture sudden and upsetting events or experiences with negative consequences. But, just like every other concept that got bastardized over time, these two degenerated as well. People even came up with new words like “bad surprise”.

The fact that US President Trump lifted sanctions and other restrictions helped CBRT breathe a sigh of relief before making its decision.

Before the release of the decision, some of the market actors told me that they would be surprised if CBRT decides to go for cut rates by more than 100 bps, and even be shocked by a 200 or higher cut. So, I asked them in return, “Do you think USD/TRY rate will rise just because rats are cut, considering that the duo fell below 5.90 when the United States decided to impose sanctions on Turkey” Eventually, CBRT decided on a 250 bps cut, hence still stable exchange rates.

So, keeping telling what CBRT would do under normal circumstances does no good for anyone because we are currently not under normal circumstances. As a matter of fact, CBRT had no other choice but to cut rates. Actually, I’m rather worried about other things, such as the Ministry of Treasury Finance’s recent actions to find funding. According to rumours, central banks may take measures about valuation accounts as well.

“Let’s be realistic…”

So, it goes to show that the government is in serious need of funds. Yesterday I delivered a thorough analysis on the upcoming tax regulations and tax hikes which will cover income tax, wage earners, real estate and motor vehicles.

If the investors are to worry about something, that’s what they should be worried about. Otherwise, it would be highly unrealistic to expect a disaster or chaos just because CBRT cut the rates down. The government tries to balance the budget through “one-time revenues” while levying drastic amounts of taxes due to poor fiscal discipline. There’s a huge gap (around 100 billions) between the primary deficit (according to IMF data) and the deficit released by Turkey; because IMF does not include one-time revenues into the equation. I must admit that Ankara has become almost a master at earning one-time revenues for the last 10 years, putting the IMF to shame with its tremendous success each year.

But joking aside, I firmly believe the future of public finance must be monitored closely since Turkey is sadly inclined to achieve GDP growth by either running a budget deficit or current account deficit. Considering the presence of such major problem, I think market investors should not be upset about a rate cut that will help banks breathe a sigh of relief.

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