Wishful thinking and ‘kismet’

Dunya Executive - - REPORT - Murat BASBOGA

In the early 1990s, I met an American journalist who was working for a financial newswire in Istanbul, Turkey. She was a jack of all trades and master of none. Her favorite Turkish word was ‘kismet’ (fate, destiny), which she used to pepper her conversations. On one occasion she finished a conversation with business executives about the investment climate and economic state of Turkey by using the word ‘kismet.’ In my headline, I have borrowed that word to extend to monetary policies.

Last week, the Bank of England raised its interest rates to 0.5%, the first move in a decade. Increasing inflation and uncertainties over the actual Brexit in 2019, the bank tried to calm inflationist pressure to stay on course for its consumer inflation target of around 2%. Consumer inflation rose to 3% in September, the highest rate since April 2012. The nine-strong panel of the Monetary Policy Committee, which sets interest rates, said the decision to leave the EU is having a “noticeable impact” on the country’s economic outlook. It said there were “Brexit-related constraints” on investment and labor supply, which were holding back the UK economy’s potential growth rate.

In Turkey, the Central Bank of Turkey published its inflation report last week. Governor Murat Cetinkaya used a more hawkish tone while taming inflation during the conference. He acknowledged the recent worsening in inflation dynamics, and while he still expected a sharp decline in inflation in the first quarter of 2018, he underlined the strength in upside risks. He also stated that the bank could take further action if these upside risks materialize. Remember, the bank stood firm without changing the rates, with just few words in the previous week’s statement. This time around, our analysts question the policy options that lie ahead.

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