If you cut the policy rate but fail to reflect it in loan rates, the Central Bank risks slipping back into the era of negative real interest rates. What the market really expects is for loan costs to ease.
Interest rates have been lowered, but what does it matter if it doesn’t reach the credit side? Don’t be surprised—yes, the Central Bank followed expectations and cut the policy rate by 250 basis points to 40.5 percent. But without measures to ensure this translates into lower loan rates, such a cut could only put exchange rate pass-through at risk.
Growth without Jobs
Growth data is coming in stronger than estimates, but it does little for employment. Per capita income is said to be racing toward 20,000 dollars, yet households see no sign of it. Interest rates go down, deposits benefit, but the resistance of credit rates remains intact. Strange, isn’t it?
Dollar Under Anesthesia, But Restless
Exporters are under pressure—exchange rates on one side, financing hurdles on the other. The economy lies on the operating table, sedated by the Medium-Term Program, but the dollar is already stirring. If rate cuts fail to serve investors, SMEs, and industry, then it’s nothing more than empty noise.
Missed Opportunity in PPK
The market expected policy statements to outline macroprudential measures to push down loan rates. Instead, the text repeated the stale lines of the MTP, insisting inflation is falling—a claim the government believes, but markets remain unconvinced.
Two Quick Questions, Two Straight Answers
What did the market expect?
Lower policy rates, banks freed up to lend, easier access to rediscount and Eximbank loans, and a focus on price stability.
What actually happened?
The Central Bank handed politics a tune to sing: “the economy is doing just fine.” As the saying goes, “neither good for man nor beast.”
Will This Push Deposits Away?
Of course. It will drive savers toward gold and foreign exchange, while Treasury papers will look more attractive. Banks, to attract deposits, will have to pay higher rates, but the path from deposits to loans won’t be as quick as the Central Bank’s optimistic tone suggests.
TCMB Glossary
Deposit rate: What you earn at the end of a term when placing money in a bank
Loan rate: The cost of borrowing money from a bank
Rediscount credit: A type of financing provided by the Central Bank
Price stability: The Central Bank’s main mission, better known as fighting inflation
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