Daron Acemoğlu's take on the Central Bank: Year-end forecasts are not realistic

Daron Acemoğlu emphasized that he is not very optimistic about the current conditions of the Turkish economy and stated that he does not find the Central Bank's inflation forecasts realistic.

Following the general elections held on May 28, 2023, the CBRT has raised its policy rate by 3,650 basis points since June as a result of the tightening supported by the President. This change came after the elections, following unconventional policies that resulted in high inflation.

The CBRT estimates that inflation will end this year at 36 percent after peaking at 73 percent in May. The tightening process in the policy rate ended at 45 percent. Although negative real interest rates have retreated from their election-period records, they persist...

Renowned economist Daron Acemoğlu, in a telephone interview with Reuters, answered a question regarding the difference between gradual and faster tightening by saying, "If they continue (tightening) while still at negative real interest rates, this will not be enough."

Acemoğlu criticized the economic policies the government has pursued, particularly over the last 10 years, aimed at increasing aggregate demand through monetary and credit policies, even though there were larger structural issues that needed to be addressed. Daron Acemoğlu said, "At certain intervals (this policy) became unsustainable and they had to increase interest rates. But then they lowered interest rates again and then increased them again, and I think this has become quite unsustainable." Daron Acemoğlu stated that all these policies have made a correction necessary.

The Central Bank announced last week that it would tighten its monetary policy stance if a significant and permanent deterioration in the inflation outlook is foreseen, and also signaled that the policy rate would be kept at its current level for a longer period.

Adding that the policy "has not been very successful as a result," Daron Acemoğlu said, "They have not fully reduced inflation. Maybe they are normalizing it a bit more, but their targets and inflation do not look realistic."

News Source: 12punto