What did the experts say for the interest rate decision of Turkey’s Central Bank?

The Central Bank ended 2019 with a big interest rate cut reducing it to 12 percent with 200 basis points. Experts believe this was the final move for major interest reductions to be applied by the bank. Just to remind, there are some experts who think the Central Bank’s quick interest rate cut decisions could be risky.

The Central Bank cut interest rates by 200 basis points to a rate cut above expectations. While the policy rate was reduced to 12 percent, it will be clear next week how much the banks will reduce their loan interest rates. The Central Bank has reduced interest rates by 1200 basis points since July.

A prominent expert has commented as follows: “The Central Bank is doing interest reductions without thinking about tomorrow. When inflation increases to 11.5 percent and 12 percent, interest rates will be at 12.00 percent. If you deduct withholding tax in fact, the money you hold in the bank will not make any money, if inflation does not fall in the future. The average of the interest expense in developing countries like our class is about 250 basis points above inflation. That is 2.5 points. It is estimated that Turkey will not incur any accident. However the risks are too big. In fact, to keep interest rates low, inflation is kept low”.

The same expert says “The Central Bank aims to increase production with interest rate cuts, initiate investments and ease the debt burden, eventually reviving consumption and bringing down inflation as well. We all know that interest is the rent of money. It depends on how long you rent the money, i.e. the maturity of the debt, and who you lend. Now we have the following problem… Central Banks follows two types of monetary policy to intervene in situations… Expansionary monetary policy and contractionary monetary policy… Widen and expand, until what point is the question. We will see the effect of enlargement in 2020, when the authority now says we are downscaling.”

Another expert on the other hand says, “the Central Bank’s interest rate cut was in line with the expectations. The Central Bank predicts that inflation will fall in the coming period. The statements once again underline that the current monetary policy stance is in line with the targeted disinflation path. In other words, the CBRT expects that inflation will continue to decline in the coming period. This suggests that interest rate cuts may continue in 2020, albeit with smaller steps. I think that by the end of the first quarter of 2020, there will be another 200 basis points interest rate cutEvaluating the impact of the decision on the market, the same expert said, “If we look at the market reaction and the 150 – 200 basis points discount expectations, we see that there is no pressure on the dollar / TL despite the highest level of discount. The weakness of the dollar today and the fact that similar countries such as Brazil and Russia continue to cut interest rates help the TL to remain strong. ”

The experts say there will be 12 meetings in 2020 but there will be no high rate interest rate cuts as in the last 4 meetings of 2019. More frequent and smaller tranches will have interest reductions. They think that the Central Bank will use its margin as much as it can to ensure single digit interest rate redirection.