Welcome (Goodbye) Chairman Murat
The Central Bank has the freedom to use certain tools in order to reach the inflation targets which are designated, or agreed upon, by the government. Since economic theory and practice have proven the accuracy of these tool, in developed countries the independence of Central Bank chairs and Monetary Policy Committee members is guarded heavily.
In Turkey, there has not been a plausible explanation of why Murat
Cetinkaya was replaced. We cannot argue that Cetinkaya had successful term during his 2.5 years in office. He is leaving inflation at around 16 percent, from 6.5 percent when he first took over.
Could he have performed better as a Central Bank chair, after being heavily criticized for not cutting interest rates, in an economy which was in an election spiral, jammed between growth and inflation? We are not sure. All we know is that during this process the Central Bank has lost much of its credibility and that the new chair, Murat Uysal, will have a hard time.
The recovery in global risk appetite, the strengthening of the Turkish lira and the inflation numbers in May and June have opened the path for the Central Bank to cut the interest rate. That’s why in our report published last week, we have forecasted a rate cut cycle starting at a 100 basis point cut in July, during which the economic policies normalize and the relations with the U.S. improve, and 700 basis point cuts for the 12 next months We do not expect the change in the Central Bank’s leadership chair’s to accelerate this process. We predict Uysal will try to repair the Central Bank’s wounded reputation by starting with around a 100 basis point rate cut, which the markets can agree on, in July, plus a clear communication. We believe a harsher rate cut will give an opposite effect to what is needed. In which case: Welcome Mr. Murat, goodbye Mr. Murat