The change of the Treasury and Finance Minister and the Central Bank Governor witnessed a literal 180-degree turn in economic management. In particular, the Governor of the Central Bank seems very active now and says that they will apply the exact opposite of all the arguments of the Albayrak era. Of course, this proposition seems logical considering the illogical and eccentric arguments and practices of the Albayrak era. However, when the explanations come down between the lines, the situation we are in is "forty mules or forty lines?" It seems to show a state like.
Zeroing the reserves and the interest rate determined below the inflation can be written to the corner in order to suppress the exchange rate, which is the main practice of Albayrak era. However, these odd arguments cannot be considered as the actions of the previous minister alone. The proposition "Interest cause, inflation result" was a mandate of the government. Therefore, it does not make sense to be shown as the only cause of the strange state we are in. The government, which took the decision of those unreasonable practices that day, is still in office and today it is declaring that it will engage in the opposite. Looking at the fractures in the report card, it seems a little difficult to be hopeful.
Naci Ağbal, the newly appointed President of the Central Bank, who increased the interest rate by 675 basis points in two months with the dust of his feet, gave very clear messages to his "relevant person" in an interview he gave recently. Ağbal says, “The tight and cautious stance in monetary policy should be resolutely maintained for a long time until 2023, when the 5% target is expected to be reached,” and says that it does not seem possible to consider a rate cut for a long time this year. It is announced that the tight monetary policy will continue in order to reach the inflation target, in other words, interest rates will remain high.
However, the political power has so far tried to find a solution to the problems of the markets through credit expansion. In other words, it was aimed to reduce interest rates, attract loans and breathe markets in this way.
Of course, this method could not go beyond being a dressing measure. As a matter of fact, looking at the last 4-5 years, citizens used every new loan taken to convert the previously purchased ones. Growing debts were tried to be financed with new debts. Although the idea of easing the interest rates and reviving the market provided relief in the short term, it helped to increase the debt burden in the long term. The quality of the economic growth achieved has also been controversial.
The political power, however, did not give up on this method. The conditions in the country reveal that the demand effect as well as the cost is more determinant in inflation. The loosening of the monetary policy in order to stimulate the economy and ease the markets a little, immediately reflects on inflation. Until now, the political government, which has preferred domestic demand-driven growth at the expense of inflation, almost never thought of removing feet from gas pedal. This situation even caused a dispute between Prime Minister Erdogan and Ali Babacan, the minister responsible for the economy at the time, who once said "the economy is too hot, we need to step on the brakes".
Today, the new economic administration talks about something other than the "classic" of the political power to date. On the way to the elections that are said to be just around the corner and have 2 years left, even if they will be held in normal time...
Tight monetary policy and high interest rates mean shrinking domestic demand and tight markets, according to what recent years have shown. Adding to this, many sectors whose burden has increased much more due to the epidemic and will not be able to withstand, the political power's continuation of this tight monetary policy until 2023 seems at first contrary to its own pragmatism.
Probably, a high interest rate policy will be applied for a while, the relaxation in inflation and exchange rate will continue, and then a short-term relief will be provided to the sectors and segments in difficulty with a new credit expansion. Then, in the atmosphere of spring weather, the elections will be asked.
Of course, Allah knows what will happen, these are all possibilities. In a way, however, the prolonged duration of this tight monetary policy, which is no different than a "painful prescription", will confirm that it is an "unofficial" IMF program that is not signed publicly but "the recommendations are strictly followed." The current situation, the fact that the people are actually taking bitter prescriptions and the rentier's noticeably sweet profits, confirms this for now.
Should we say "interest lobby won" or not?