Economists evaluate Central Bank's interest rate decision: 'The inflation lobby won'

The Central Bank of the Republic of Turkey (CBRT) Monetary Policy Committee (MPC) has announced its first interest rate decision of 2024.

The CBRT raised the policy rate from 42.5 percent to 45 percent, in line with expectations.

Following the May 2023 elections, the CBRT had raised interest rates by a total of 3,400 basis points across 7 meetings, including 650 basis points in June, 250 basis points in July, 750 basis points in August, 500 basis points each in September, October, and November, and 250 basis points in December.

Economists evaluated the first interest rate decision of 2024 announced by the Central Bank.

'THE CENTRAL BANK IS EXHIBITING A NEOLIBERAL STANCE'

Sharing the MPC text, Economist Prof. Dr. Hayri Kozanoğlu stated that the text did not include employment and growth, and that the Central Bank is exhibiting a neoliberal stance.

Kozanoğlu noted the following in his post:

"The CBRT raised the policy rate to 45 percent. It says it will stop here. It implies that it could raise rates again if inflation cannot be reduced. It does not mention lowering rates at all. It is exhibiting a completely 'neoliberal' stance that does not touch upon growth and employment issues."

'THE INFLATION LOBBY WON'

Economist Tunç Şatıroğlu, sharing the Central Bank's interest rate decision, included the statement, "Get well soon. The inflation lobby won."

'THE PEAK HAS BEEN REACHED, IT MUST BE MAINTAINED FOR AT LEAST 6 MONTHS'

Economist Murat Kubilay noted that with today's interest rate decision, the peak in the policy rate has been reached and that this level must be maintained without compromise for at least 6 months.

Kubilay included the following statements in the entirety of his post:

"The policy rate has reached its peak point. With the compound yield, it goes up to 57 percent. If it is pulled to the same level in swaps and market liquidity is tightened a little more, the maximum that can be done will have been done. These are good news.

The bad news is that this level needs to be maintained without compromise for at least 6 months. Let's even say a minimum of 24 months with limited easing. We will see the real impact of interest rates on the real economy starting from 6 months after the elections. That is when we will all see together that raising interest rates when on the brink of an abyss is the easy part, and that facing the reality of living with that interest rate for a long time is the real issue.

As everyone knows by now, economies do not improve just with interest rates, but when a mistake is made here, major shocks occur. We will watch the rest of the story together. But many of us already know more or less what will happen. Especially when the economy slows down significantly, squeezed between the exchange rate and the interest rate, and non-performing loans and unemployment become the main agenda; that is when we will see the authority and skill of the current economic management. There will be much to write about the economy when elections are not yet on the horizon and we reach the limit of polarization."

'IT MAY CAUSE THE PROCESS TO BE JEOPARDIZED'

Economist Özlem Derici Şengül shared the MPC text and included the statement, "The CBRT said 'the necessary level of tightness has been reached'."

In a post she made before the decision, Şengül had said, "Whether the Central Bank maintains its verbal guidance of 'as soon as possible' or how it changes it, in the event of a 2.5-point increase, will be more important than the decision itself."

Şengül had noted the following in the continuation of her post:

"While inflation remains high, while demand has not yet been lowered, while an environment of abundant liquidity continues, while the monetary transmission mechanism has not been made to work in a way that will increase savings, in short, while no signal has been received other than a tiny improvement in expectations regarding the effectiveness of policy steps, ending monetary tightening and fighting inflation only through quantitative tightening may cause expectations to deteriorate and the process to be jeopardized."

News Source: 12punto