Short term in­ter­ests and eco­nomic trends

Dünya Executive - - COMMENTARY - Ugur CIVELEK Colum­nist

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?

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