What will happen in Turkish economy after Central Bank’s interest rate cut of 100 points?

The Central Bank (CBRT) announced its interest rate decision and cut the policy rate by 100 basis points to 15 percent. Thus, interest rate has been reduced by a total of 400 basis points after September October and November meetings of CBRT.

Despite the sharp depreciation in the TL and the increase in inflation, the bank also sent a message that it will continue to cut rates in December, as well.

The dollar/TL exchange rate, which was at the level of 10.57 before the decision, rose to 10.97 and then to 11.31 (and higher) after the decision. The exchange rate was 8.27 at the beginning of September, before the interest rate cuts.

It would not be surprising to see foreign capital inflow under prevailing circumstances

Regarding latest developments in financial markets some economists have said following; “As a result of the undeserved and meaningless rise in exchange rates, it would not be surprising to watch the inflows of foreign capital and asset purchases and changes, in Turkey in the coming period. I believe that the domestic political news flow, not macroeconomic, will be more important to determine the timing of this process.”

“Depending on the step to be taken in December and other agenda items, a new balance of 10-12 bands may be accepted at exchange rates. The rate will not likely go under 10 TL.”

WHAT DOES THE CENTRAL BANK TARGET

As many experts comment, ”The Central Bank has gone to a rate cut for a reason (if any) unclear for many.” However, based on what is understood from the decision text (of CBRT) the possible aim of the economy administration (certainly dictated by the president) could be as follows:

“This way, it is targeted to increase production by lowering commercial loan interest rates, and at the same time, consumption is expected to be reduced due to the cost of living. Thus, with the current account surplus and the reduction of the risk of inflation over time and given the anticipated decline in commodity prices in the summer months, as well as an increase in tourism revenues the exchange rate would go down again and the inflation will finally be brought under control.” (Edited by BTT)

Source: www.sozcu.com.tr/2021/ekonomi/faiz-indirimiyle-dolar-11i-gecti-bundan-sonra-ne-olacak-6776487/?utm_source=ilgili_haber&utm_medium=free&utm_campaign=ilgilihaber

Editor’s note: As shared in several articles on this web-page earlier, a radical/long lasting cure to the economy would certainly be “re-establishing of TRUST in Turkish economy” in the eyes of global parties, as well as within the country – so as to encourage DFI to come into Turkey and also trigger investments by local enterpreneurs/groups. This would create/boost employment which would in return certainly contribute to rehabilitation of the Turkish economy. To provide these conditions, reforms in certain areas such as judiciary, re-establishment of parliamentary system and a genuine fight against corruption would be essential elements of a plan to get Turkey back on the right track again.