A step closer to sin­gle-digit in­ter­est rates

Dünya Executive - - COMMENTARY -

It was a sec­ond step to­wards sin­gle dig­its with Cen­tral Bank’s Mon­e­tary Pol­icy Com­mit­tee in­ter­est rate cut from 19.75 per­cent to 16.50 per­cent. The first step was taken on July 25. Of course, the sin­gle digit is not our ex­pec­ta­tion or forecast. Pres­i­dent Er­do­gan had re­cently pointed to a sin­gle-digit level in in­ter­est rates. On July 25, the in­ter­est rate was trimmed from 24 per­cent to 19.75 per­cent, a 4.25 point re­duc­tion. As we just men­tioned, the com­mit­tee cut rates again by 3.25 points down to 16.50 in last week’s meet­ing. In other words, there was a re­duc­tion of 7.50 points within less than two months.

It was no sur­prise

It was pretty clear how much the Cen­tral Bank would cut rates in last week’s meet­ing. 3.25 points was no sur­prise. As we said a cou­ple of times ear­lier, the Com­mit­tee’s meet­ing on Oc­to­ber 24th and the de­ci­sion com­ing out from that meet­ing is crit­i­cal. It is worth em­pha­siz­ing some of the facts one more time:

►Has Pres­i­dent Er­do­gan once again stated that he is al­ler­gic to high in­ter­est rates? Yes. And did he say: “We will re­duce the in­ter­est rates down to sin­gle dig­its” once again? Yes.

►The course of an­nual CPI is out there. If the price in­crease in Septem­ber is lower than 1.66 per­cent, will the an­nual rate go down to sin­gle dig­its at the end of Septem­ber? it will…

►Is there an in­crease in for­eign ex­change rates when rates are cut - no mat­ter how it in­creases? There is.

Now put your­self in place of the mem­bers of the Mon­e­tary Pol­icy Com­mit­tee: A se­ries of pre­lim­i­nary prepa­ra­tions have been made for the Oc­to­ber 24 meet­ing and you have gathered to make de­ci­sions. You look at the an­nual CPI, prob­a­bly a sin­gle digit. The politician­s have al­ready de­cided on your behalf, de­mand­ing a sin­gle digit for in­ter­est rates.

It can be very shock­ing to go below 10 per­cent at once from 16.50 per­cent; a bet­ter de­ci­sion is to set a rate around 10-11 per­cent. Who knows, maybe you take a leap of faith and cut it down to 9.75. The dif­fer­ence is just 0.25 points but the mean­ing dif­fers a lot when it is 10 or 9.75 per­cent.

Should rates be sin­gle digit?

Now, if the Cen­tral Bank takes such a step in or­der to relieve the pres­sure from politician­s and to say: “Look how in­ter­est and in­fla­tion fell to a sin­gle digit,” it may have to in­crease the in­ter­est at the De­cem­ber meet­ing. But if there is no ex­traor­di­nary set of de­vel­op­ments by Oc­to­ber 24th, we could see in­ter­est swiftly low­ered to sin­gle dig­its.

So if the Cen­tral Banks takes such a step, be­cause it can’t re­sist political pres­sure, it may have to raise the for­eign in­ter­est rates in De­cem­ber meet­ing. But we may wit­ness sin­gle digit rates on Oc­to­ber 24th - which doesn’t seem pos­si­ble right now - if there are some ex­traor­di­nary de­vel­op­ments.

Newspapers in English

Newspapers from Turkey

© PressReader. All rights reserved.