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Today, the Monetary Policy Committee of the Central Bank will decide the interest rate. This decision will show whether resistance to the interests of economic management will change according to current conditions.
Our experiences have clearly shown that it is important to save the day when there is no long-term perspective and planning in the economy. But getting stuck in interest doesn’t save the day.
Is interest a cause of inflation or a result? We are experiencing the problems today because we are stuck with these mistakes. Truly the best answer to this question “ The chicken or the egg comes out, the chicken or the egg comes out ” will be. Interest and inflation ratio; It changes according to the economic situation, the structure of demand and confidence.
Our experience in this field is very recent. If the reference interest rate does not remain at 10.25 and increases according to the conditions during the term of the previous governor of the Central Bank, the dollar would not exceed 8 liras.
Before resigning the Minister of Finance and Treasury, Turkey’s risk premium for bankrupt five-year bonds in international markets was 525 basis points, 320 basis points after the increase fell to forego interest and MBA.
Today, as confidence in the government and the judiciary declines, the economy is extremely fragile, the Central Bank has insufficient foreign exchange reserves to interfere with the exchange rate, real interest rates are more affected..
Currently, the CPI rate is 14 percent, increasing a bit more at the end of the year. Under these conditions, real interest rates remained very low compared to the CBRT benchmark interest rate. It can also be zero at the end of the year.
The negative real interest we are experiencing has directly increased the demand for foreign exchange, gold and real estate. Will continue. Real interest rates should also include the risk premium of Turkish CDS rates. So there must be at least 3 points. If inflation is 14 percent, the real interest should be 17 percent.
We have to keep the rates … because Installing in a fun way, messed up the system … When the problems caused by the floating exchange rate policy were combined with other exchange rate and economic problems, exchange rates became extremely volatile. The rise in exchange rates caused an increase in the prices of imported inputs and the costs used in production. It also caused an increase in the price of imported consumer goods.
Today, the basket of currencies is 40 percent more valuable. The Central Bank announced that the central bank and public banks will not sell foreign currency to maintain exchange rates. He said that they only have TL interest and liquidity instruments. The excessive tightening of the TL supply increases the magnitude of the contraction of the economy. Therefore, the monetary policy committee has to raise interest rates at today’s meeting.
The need for foreign exchange increases in the current account deficit. In the first 10 months, the current account deficit was $ 31.1 billion. This year, the current account deficit will be $ 37-38 billion, 5 percent of GDP.
Foreign direct investments other than real estate have stopped and there is an exit in portfolio investments. In addition, it transfers currency to protect locals.
Due to the high risk and interest, the private sector has paid up to 15 billion of external debt since the beginning of the year, using its own means or savings abroad, if any, instead of borrowing from new external debt.
The Central Bank carries out swaps at high interest rates. The high interest rate increases the cost of foreign currency.
Let me repeat once more the summary solution I mentioned earlier; The solution is to change the exchange rate policy and go to a system that reflects on exchange rates, to save the bank from political pressure by changing the Central Bank law, and to make sure that it observes the exchange rates as well. like the TL, and most importantly, to restore confidence in democracy and the law.
