Short term interests and economic trends
If trends in local demand and investment don’t go up despite the substantial rate cuts, it is safe to say that the argument of the worst days being over is nothing more than a big fat lie. In these circumstances, the macroeconomic outlook continues to deteriorate and the possibility of expectations regaining an optimistic perspective are becoming more distant day by day. Due to the rate cut, the recovery on asset values and balance sheets will not be permanent and with the return of the risk avoidance trend, alienation from the regulated market understanding will accelerate!
Rate cuts being ineffective on local demand and investment tendencies is a serious structural issue! In this regard, the fundamental structural issue is the de
terioration of the distribution of income and wealth to levels that border the extreme. In these type of scenarios, the efficiency of monetary policy implementations decrease and risk of side effects swell. There isn’t a solution for this issue within the scope of globalized irregularity, which is defined as the understanding of regulated markets.
If local demand and investments don’t rekindle, rate cuts would not be enough to prevent asset values from weakening and balance sheets from deteriorating. The volume of non-performing loans will set sail for new records, balance of the public sector won’t be ensured and deficit spending will grow. The losses or deficits funded with a somewhat more moderate cost won’t reduce the non-operating expenses or the washout of the operating revenues. The tendency to avoid risk will become more of an issue as the systematic risk perception strengthens.
We have always saved the day on the expense of structural issues weighing down
The argument of solid rate cuts serving their purpose, and continuing to do so, is not meaningful anymore. We had a hard time restraining frenzies in the first half following the global crisis, while in the second half we pushed the boundaries in order to save the day. First we tried to limit the pace of credit demand in order to regain control of the current deficit; then we had to do the opposite in order to save the day with the credit guarantees. While this was going on, we salvaged the day at the expense of all structural issues, including the distribution of income. But now it takes more than a few buckets of water to turn the wheel!
Those who think that credit expansion will accelerate with the monetary policy easing could be very wrong. Those who are able to pay back the sum they borrowed are reducing risks; they won’t plan new investments and restructure their credits by reducing the earlier ones, instead of getting new ones. Those who are not in position to pay back what they got, on the other hand, will run after fresh credits and restructure earlier ones. In these circumstances, would the easing of monetary policy accelerate the rise on credit volume and support growth?