British economist Timothy Ash's take on the Turkish economy: How does the detention of İmamoğlu affect interest rates?
The Central Bank of the Republic of Turkey (CBRT) Monetary Policy Committee (MPC) was set to announce its policy rate decision at its meeting on April 17. Following the detention of CHP presidential candidate hopeful and Istanbul Metropolitan Municipality Mayor Ekrem İmamoğlu, there was volatility in the stock market and exchange rates in Turkey. As the dollar hit a historic record, British economist Timothy Ash suggested that the Central Bank of the Republic of Turkey (CBRT) might be forced to raise interest rates.
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After the CBRT cut the policy rate by 250 basis points to 42.5 percent in February, the question of what step it will take this time has become a subject of debate. With the detention of Ekrem İmamoğlu on the morning of March 19, the dollar exchange rate climbed above 41 TL, while Bloomberg claimed that the Central Bank sold 8 billion dollars to keep the exchange rate under control. Chatham House fellow and Emerging Markets Strategist Timothy Ash stated that the CBRT might be forced to go for an interest rate hike.
Ash argued that the volatility in the stock and foreign exchange markets shows that the CBRT is intervening in the market through foreign exchange sales. Expressing that the detention decision definitely adds a new challenge to the Central Bank's fight against inflation, Ash reported that his expectation for interest rates to fall has changed.
Underlining that political developments such as the detention of İmamoğlu could affect the Central Bank's interest rate cut strategy, Ash made the following remarks:
''Turkish state media reported that police have detained the Mayor of Istanbul, a key rival to President Recep Tayyip Erdoğan. This throws a spanner in the works for the Central Bank's recent moves to lower interest rates following a series of hikes that helped bring down inflation and support the currency.''
KARAHAN EMPHASIZES 'PRICE STABILITY'
CBRT Governor Fatih Karahan emphasized that policies aimed at ensuring price stability will increase confidence in the Turkish lira. Karahan pointed out that the determining factor in interest rate policies is to reduce inflation.
In a speech he gave in the US recently, Karahan gave messages regarding monetary policy and stated the following:
'Our priority in determining the policy rate in the coming period will be to reduce inflation. We will maintain our tight monetary policy stance until price stability is achieved.'
According to the Central Bank's latest Survey of Market Participants, participants expected the policy rate to be at 37.70 percent in 3 months and 27.60 percent in 12 months. The path the CBRT will follow in the upcoming meeting is being monitored in both local and international markets.