I discussed over this issue with a number people from various sectors yesterday, including banking, real sector and trade. Especially business people say that they would get into trouble in case of a rate hike.
I asked to everyday citizen too. Most of them are convinced that high interest rates are causing more harm than good. And the rest stated that they do not or cannot really take an interest in economy because of everyday problems.
It made me wonder though, “Who then would benefit from high interest rates?” Here’s the result of my research:
I realized some people were waiting impatiently for a rate hike since they had sold every single dollar they got and converted into Turkish lira when USD/TRY hit 4.00. Yes, they made profit out of loss, but it doesn’t matter. They want to win, always. I know they would be thrilled to see deposit interest rates climb up to 20 %. That’s why they are rooting like crazy for a new hike. In short, the rentiers are expecting Central Bank to increase interest rates.
And to prove themselves right, they keep sharing posts like, “Only high interest rates can help attract foreign funds” on their social media accounts. “It doesn’t matter if interest rates hit even 100%. This is simply not good enough argument for cash inflow”, I say in response. But, deep I know that I am wasting my breath as these people are consumed by money.
But who is playing into the hands of these people? Here’s the answer.
“Who supports the need for an interest rate hike?”
A whole bunch of economists that are stuck in last century paradigms… People invite them to high-level meetings; want them to write columns for their newspapers. Some of these economists even work for banks. These are the people who hail CBRT’s very late decisions and say, “If CBRT didn’t hike rates, it would be way worse”. But that’s not the issue I am concerned about.
Liquidity squeeze gets more severe, cost of funding increases as interest rates are going higher. Creditors/business owners are having difficulties to collect unpaid debt. In the meantime, exchange rates do not go down either. TRY keep depreciating even though Central Bank continues to hikes rates since April. USD/TRY climbed to 4.80 from 4.04 despite the CBRT’s 500 bps rate hike within ninety days.
Although I frequently pointed that delayed decisions do more harm than good they always had their answer, “Yes, it may be a late decision but it could have been worse if they did nothing”. A meaningless, yet non-disprovable statement…
In conclusion, it is most likely that Central Bank will hike rates. I expect trouble on the way if CBRT decides on a hike higher than 100bps. First exchange rates will fall, they start increasing again. That’s how things work.
I just hope they will read my report and show hesitation, even if just a little bit.