Pre-MPC assessment from Alaattin Aktaş: 'If this isn't done, the fire will grow'

Alaattin Aktaş, in his article shared on ekonomim.com, provided predictions and assessments regarding the decision to be made at the Monetary Policy Committee meeting on March 21. Aktaş stated, "Rather than waiting another month and risking things getting completely out of hand, it seems like a more realistic approach to bite the bullet on March 21," he said.

Aktaş's article is as follows:

"I see that almost everyone I have met and spoken to over the last few days is looking for an answer to the question of what kind of decision might come out of the Central Bank's Monetary Policy Committee meeting on Thursday, March 21.

The summary of the conversation and chat is as in the headline:

“Interest rates should be raised; conditions require it.”

That is what is being said, but it is added:

“Interest rates should rise, but will they be raised? That is the unknown.”

From 0 to 100!

The issue of raising the policy rate has become a bit like the “0 to 100” analogy used for cars.

Just a month ago, when an interest rate hike in March was almost not expected at all (at least I did not expect it at all and did not even think it could be brought to the agenda), the subject suddenly turned into a 0 to 100 analogy with the reports and statements of foreign banks.

First, it was suggested that raising the policy rate in April might be on the table, and then the predictions were moved forward to March.

The foreigner got what they wanted!

We have once again witnessed the power that foreign banks have in influencing and directing the market in Turkey.

There was no such atmosphere of panic in the market when the January inflation was announced as 6.70 percent, nor in the days immediately following the announcement of the February rate as 4.53 percent.

The market was slowly pushed into a state of panic.

In other words, the foreigner got what they wanted and was very successful from their own perspective.

Thankfully, many names within the country also made comments as if to add fuel to the fire, and they continue to do so. As if by prior agreement, the view is being put forward that the Turkish Lira is very valuable and therefore the exchange rate must rise rapidly. Exchange rate predictions are flying around, but it is not very clear what anyone is basing their prediction on.

The market is like this, but what is the economic management doing? Finance Minister Mehmet Şimşek and the economic management, who took office by expressing the view that “Turkey has no option other than returning to a rational ground,” have slowly begun to slide back toward that old ground.

The Central Bank has had to slowly move away from its simplification practices.

The citizen is helpless; they look at what is being said, then at what is being done, and then go and buy foreign currency and gold with whatever they have in their hands.

Now they are watching!

Let's admit it; the foreigners were very successful in creating public opinion from their own perspective; they ensured that the citizen moved away from the Turkish Lira and turned to foreign currency and gold.

Now, like an arsonist who has started a fire, they can pull back to a corner and watch what the fire department will do.

And that is exactly what they are doing.

They know that what needs to be done to extinguish the fire immediately is limited:

“It is inevitable for the Central Bank to raise the policy rate.”

If this is not done, the fire will grow.

If there is a delay for a fire that could now be extinguished with a few fire trucks, dozens of vehicles will be needed.

For a foreigner, could there be a greater success than ensuring this with three or five reports?

Time for a decision; should the exchange rate rise, or the interest rate?

Current conditions suggest that it would be good to go for an interest rate hike on Thursday. If the interest rate is not raised at this meeting, April seems inevitable anyway.

Rather than waiting another month and risking things getting completely out of hand, it seems like a more realistic approach to bite the bullet on March 21.

What the politician will risk here is what is important:

“Will they risk the interest rate rising, or the exchange rate rising?”

There seems to be no other way in the short term to keep the exchange rate in check than to raise interest rates. The Central Bank is trying to keep the market under control by selling foreign currency, but it does not have that much foreign currency to sell. Especially, it is not possible to sustain this until April. Looking from this framework, the possibility of an interest rate hike on Thursday is strong. But it is being stated that if a decision to hike is made, keeping it limited to 2.5 points will not work at all, and that the hike needs to be 5 points. Comments are predominantly in this direction.

Will permission be granted before the election?

So, will raising interest rates while heading to the election cause a political loss for the government? I don't think so at all.

Because for the AKP voter, lowering interest rates is an important and correct decision, and doing the exact opposite and raising interest rates is too!

Of course, with only ten days left until the election, a politician would not want to raise interest rates, but on the other hand, they would not avoid it if it would prevent the exchange rate from rising.

Because for the Turkish public, the most important indicator of whether the economy is going well or badly is the exchange rate.

Therefore, it would not be a surprise if a step is taken that could suddenly stop the rise of the exchange rate, or even cause it to pull back slightly, as the election approaches. However, there is also this reality; foreign currency has become such a widespread savings tool that who knows, perhaps a step that would stop the rise in foreign currency will disturb the masses.

This is the inevitable result of being a dual-currency economy..."

News Source: 12punto