Will the 31st of March Be a Milestone?

Will the 31st of March Be a Milestone?


Sales from the foreign exchange reserves, the increase in the number of foreign currency deposit accounts, sales of TRY-denominated assets by international investors, and the rapid upward trend in loan interest rates have marked the last week in Turkey.


Before the general elections, people were asking me “What does the Central Bank do to keep FX rates under control?” And my answer would be, “What doesn’t it do?” The ‘crawling peg’ regime, which was first implemented in 2000, stopped functioning at a time when Turkey was having the best relations with the EU, the US and NATO, and experiencing almost zero problems with Greece. Although the Central Bank continued to have people’s confidence for a while after the failure of this system, the side effects ultimately led to liberating exchange rates.


Today, as the world is in a diplomatic and political turmoil, Turkey’s Central Bank continues to intervene in foreign currency purchases and sales. When comparing the current number of foreign currency deposits with that of the KKM deposits, it becomes more obvious that the people’s interest in foreign currency is rapidly increasing. I think, at this rate, $1 US in Turkey could soon be TRY 35, probably before the elections. The year-end target was projected as TRY 36 by international financial institutions. But this expectation is likely to be revised considering the recent developments.


I can’t help but notice that some people who had once enthusiastically supported the Central Bank decisions are now criticising it quite harshly. This reminds me of something the legendary boxer, Mike Tyson, once said: ‘Everyone that you fight is not your enemy and everyone who helps you is not your friend.’ So perhaps it’s best to criticise the outcomes, therefore, the decisions that led to those outcomes, not the persons who made the decisions.


Working at the Central Bank has been a career-damaging role for the last seven years. Among the former Governors, only Mr. Kavcıoğlu managed to preserve his professional reputation. And he was also the only one who wholeheartedly believed in his own economic model. Others pretended like they have been wanting to do their jobs but they have not been allowed to do it.”


Once again Minister Şimşek has pointed the finger at exporters, accusing them of demanding a certain level of FX rates. Şimşek has been making exporters the scapegoat in order to cover up the mistake and the negative consequences of pressuring exchange rates. Fortunately, elections are fast approaching. My guess is that he could break good news to exporters after the 1st of April, which, of course, would be the liberation of exchange rates from rigid pegging.


Honestly, statements like “central bank is determined to tame inflation” or “central bank refutes comments about foreign exchange rates” are not taken seriously by anyone. More and more people have recently been saying “When interest rates were 8.5%, one US dollar was 19 Turkish liras, and inflation was not that high”, or “the new management made everything even worse”.


Let me offer my humble advice: Instead of saying how determined they are, the Central Bank might want to try to be sincere and say, “Currently, the economy is out of balance, and we cannot take the necessary actions to fix it until the election is over. Unfortunately, ordinary people will pay the price for that, not the rich. But your hardship will yield rewards. We know that you need to buy things, but doing so makes inflation stickier, so we must set some boundaries to your consumption. This is why we have also put restrictions on granting loan funds to individuals. This is the only solution we could use for now.” When they act as if they are capable of everything but fail to produce any result, people either think “they can’t do it” or “they won’t do it”. Both impressions are bad enough.