"Delaying the unavoidable..."

When we take a look at what happened since the beginning of the week, we can see that exchange rates are back on the track again, which means that neither CBRT’s manoeuvre nor statements from Ankara seem likely to stop USD/TRY from hitting record highs again.


 

When we take a look at what happened since the beginning of the week, we can see that exchange rates are back on the track again, which means that neither CBRT’s manoeuvre nor statements from Ankara seem likely to stop USD/TRY from hitting record highs again.
 
First of all, I must say the fact that CBRT’s statement for banks, “Do not bring me dollars. You can keep it all. But you better hand over the liras to me” only answered the purpose of triggering a predictable movement. CBRT was merely making efforts to “delay the unavoidable” for a very long time. The result of the attempts for preventing USD/TRY from touching the levels of 2.00 and 3.00 respectively is quite obvious I think.  Therefore, we better get ready to go through the same things again when the duo hits the ‘already tested’ 4.00 level again.
 
CBRT’s makes fruitless efforts to take exchange rates under control as it was already unable to restrain inflation by withdrawing all of the excess liquidity from market. As we all know, trying this method over and over again has always resulted in the same way: both interest and exchange went up. 
 
From this point of view, I can say that a rate hike by CBRT might calm down the exchange rates temporarily; because, rate hike will probably bring other risks such as negative perception of Turkey abroad, troubles that financial institutions might face and finally a huge negative impact on the growth. 
 
I don’t think the result will change whether or not interest rates are increased drastically; because, cause-effect relationship is breaking down. Those who suffer from “institutional blindness” think markets will calm down if CBRT hikes rates. But, it must be known that a rate hike alone won’t be enough to solve all the problems.  
 
It just seems unlikely to prevent national currency from depreciating in a country where Monetary and Financial Policies do not function in harmony, thus remaining incapable of providing the world with a brand new story. The interesting thing is that although this theory has been proven to be true many times since 1923, there are still some people who think this time will be different.
 
I suggest all those who still believe that to read “which I co-authored with  "Milestones in Turkish Economy”.


Emre Alkin

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