The "interest insistence" is reversed: Who won?

Following the “Berat Albayrak tragedy” in the Turkish economy, interest rates were raised by 4.75 points by the decision of the new management of the Central Bank.

This means that the decision to "strengthen the economy by lowering interest rates" was artificial; just as it had a completely negative effect on monetary policy, it defeated the Central Bank in the fight against inflation.

Although a sudden increase in interest rates of about 5 points has led to a sharp drop in prices in the foreign exchange market, we will soon see that this increase does not fully meet the general demand of the market. It is clear that the exchange rate will not "stand still" and will require new interest rate increases from the Central Bank.

Although the Central Bank said in a statement that "inflation is temporary" and tried to sow water in the hearts of the public, this statement should not be taken seriously. As a person who has been watching the country from the inside for 28 years, I have never seen prices rise by 30-35% in 2-3 months in the Turkish market.

Everyone knows that the Central Bank, where its third president is in power since the summer of 2016, no longer has the luxury of not following the instructions of the political leadership; in this area, Turkey abandoned its traditions and began to follow the path of Russia. For example, just as Elvira Nabiullina, a former economy minister, was later appointed head of the Central Bank to determine the country's monetary policy, Turkey appointed a former Minister of Finance as president of the Central Bank.

Just as the dictatorial steps taken by Nabiulllia in a dictatorial situation could not curb devaluation and inflation, it was very difficult for the private sector, which was fearful of the dictatorship, to consider borrowing under the “Nabiullina rules”.

The Central Bank of Turkey introduced its president from its “base” between 1996 and 2016. With the appointment of a third president of the Central Bank in the last 4.5 years, the tradition of “introducing from the base” was ruined, and a former minister in the government of a political party was brought to the head of the Central Bank.

The market, of course, sees this, and do not doubt that the state takes these factors into account when determining its position on monetary and inflation policy. Therefore, the market's reaction to the decision of the former Minister of Finance and the current President of the Central Bank, Naci Ağbal, to “raise interest rates” on the recommendation of policy or voluntarily was positive, and the ever-rising exchange rate fell by about 13% as interest rates fell.

In the future monetary policy of the Central Bank (no matter how independent), it should not be expected that the exchange rate will fall below this level. Because we are talking about the complete depletion of foreign exchange reserves (Berat Albayrak intervened in the market with foreign currency in spite of everything). In the subsequent processes, it will be a great success not to stabilize the national currency at today's exchange rate, but to be able to stabilize it, albeit with slight devaluations.

Therefore, while waiting for the Central Bank to respond to the expectations of the market and citizens, the question of the processes that have taken place in the last 2.5 years comes to the fore: After the exchange rate of the US dollar against the Turkish lira rose to 8.5 TL, if the Central Bank was able to reduce interest rates by exactly 1 TL, so who played this game in the foreign exchange market, and why? I have been asking this question since January 1994. Because I saw the first currency crisis in those days. Currency exchange offices that could not keep up with demand locked their doors. "There are several treacherous bank owners," said Yalım Erez, the closest person to Prime Minister Tansu Çiller. After the severe crisis of February 2001, Turkey was able to overcome the devaluations for a while with radical reforms in the banking system.

But what happened now that the exchange rate fell by 1 Turkish lira due to the Central Bank's interest rate policy? Is it possible to imagine how much money the big players, who changed one US dollar as 8.5 Turkish liras, gained by raising the interest rates of the Central Bank by 4.75%?

We have repeatedly written that the current monetary policy of the Central Bank of Azerbaijan is more logical. However, provided that it takes a step without forgetting the disorder created by the very high devaluation decision it made in February and December 2015...

Mayis Alizade