Patience needed in the rebalancing process
The latest figures show that under normal conditions, Turkey’s economic recovery will start in the third quarter. Although Minister Albayrak emphasized that there may be signs of an earlier recovery at a meeting with journalists last week, it is quite important that the work is not rushed. Expansionary economic policies that will damage inflation dynamics and foreign exchange balance are not intended. Similarly, the CBRT should maintain its patient stance in interest policy.
It would be useful for the CBRT to increase its forward guidance regarding the process of disinflation. What I mean by this, is that it could give guiding signs regarding the conditions, periods of time and amounts in which it would reduce rates. This approach may also be an effective accelerant for the recovery.
Another positive figure, although not too high, is the increase in exports seen in January. The increase rate of 6 percent is moderate, but it is not a bad result when the stagnation of our foreign trade markets is considered. On the import side, there is a decrease in the imports of intermediate goods, despite the increase in energy imports. This shows that the import entry rate in exports is also falling.
If we take into account that we will have a current surplus in the months in which we normally experience a current deficit, we can say that the probability of experiencing a crisis on the balance of payments has decreased considerably. (Bad news for those waiting for the IMF!)
Another point that Minister Albayrak emphasized in his speech is that credit portfolios have not increased, despite a decrease in interest rates. Indeed, despite the decline in trade loan rates by more than 10 points in the past 4 months, the total TL loan volume continues to decline.
We should be patient during the rebalancing process that we have entered. This patience must come from both the government and the private sector, especially when local elections are approaching. One point to keep in mind is that in the coming period, foreign source inflows will not be as abundant as in previous periods. Under these circumstances, an excessive expansionist attitude in fiscal policies would reflect negatively on inflation and other economic dynamics.