Can a central bank that has failed to meet its inflation target for years be taken seriously? Can a central bank that raises its year-end inflation forecast from 42.8% to 60.4% within the same year be taken seriously? Is there any need to read the texts written by this central bank following the money market board meetings?
How can the head of a central bank talk about “hard measures” against inflationary pressures since he made the monetary policy inoperable within 10 months? Moreover, if the same central bank brought inflation from 19.58% in September 2021 to 78.62% in June 2022, according to Turkish Statistical Institute data.
The same central bank governor talks about the convergence of interest rates to the policy rate. Isn’t he aware of the fact that market interest rates have been increasing although the policy rate has been at 14%? The reason behind the increase in interest rates is the Banking Regulation and Supervision Agency (BRSA). Nothing explains the lack of coordination between institutions better than the inflation report of the Central Bank of the Republic of Turkey (CBRT).
By replacing monetary policy with a variety of regulatory tools, the BRSA is trying to prevent one of Turkey’s largest credit expansion periods. It’s not the market dynamics, but the pressure methods implemented by the BRSA on the credit market to slow down that expansion. Turkish Lira (TL) loans, which were TL2.8 trillion at the beginning of 2022, reached 3.9 trillion TL according to the data of July 22, 2022 revealed by the BRSA. The increase amounted to TL 1.1 trillion.
The governance crisis and social trauma that Turkey has undergone under the presidential system have also found repercussions in the economy with severe consequences. The rise in exchange rates has not been stopped with practices that cannot be described as “policy”. Although foreign exchange-protected deposit accounts (KKM) have been forced to be opened, so called “Liraization” cannot be reached without a consistent policy base in place. According to the BRSA data for July 22, 2022, TL 1.1 trillion was accumulated in KKM accounts. Even excluding KKM accounts, 56% of the total deposits of TL 7.3 trillion in the banking system still consist of foreign currency deposit accounts. So, Turkey is still under strong dollarization conditions.
The balance of payments deficit widened as of May 2022 compared to May 2021. The government which asked for 6 months of patience from the society on the days of the New Economy Model announcements now points to 2023 despite 8 months have passed.
While the central banks of developed and developing countries have been increasing interest rates one after the other in order to protect their economies, the same central bank governor believes that the recent rise in Turkey’s CDS premiums can be attributable to “foreign powers.”
Turkey is in a major transformation process. With the wobbles in foreign policy, with the conditions of lack of policy and coordination in the economy. Deep ideological fault lines lie behind this great transformation. The explanations that Allah determines the market prices express the breaks in these deep ideological fault lines.
The polarization in the society points to a clash of civilizations. The effect of this clash of civilizations on foreign policy is seen as the inability to understand where Turkey is positioned in the international arena. In the economy, it emerges in terms of interest.
There is no choice but to wait for the election. Until the election, we will continue to write and talk only about economic damage assessments.
