Central Bank of Turkey: Trust takes time

At its first meeting under new leadership, the Central Bank of Turkey raised its key interest rate from 10.25% to 15.00% and promised more transparency. This means that it has fulfilled the expectations currently prevailing on the market. However, it should be clear to the guardians of the currency that confidence cannot be regained overnight. This requires an appropriate monetary policy over a longer period of time. And it is certainly not without reason that the guardians of the currency emphasize in their statement that they want to maintain a restrictive monetary policy until a permanent decline in the inflation rate has been achieved. They also stress the need for transparency, predictability and reliability of monetary policy measures in order to achieve and maintain the goal of price level stability.

It is not only for the central bank that the latest statements now need to be filled with life. Further developments in Turkey are also likely to depend on whether President Erdogan maintains the backing he has recently expressed for the more restrictive monetary policy stance in the long term. After all, it was not least his repeatedly publicly propagated demands for low key interest rates in recent years, combined with the unorthodox notion of being able to use them to reduce price pressure, that brought the country and its currency into the prevailing misery in the first place.

As long as doubts about the sustainability of the turnaround in Turkish monetary and economic policy have not been completely dispelled, international investors are likely to act cautiously. The abundant global liquidity and the low level of returns in the industrialized nations will not change this situation. In the coming weeks and months, it will be particularly important for the lira that the central bank succeeds in implementing an appropriate monetary policy and establishing a perceived independence from the short-term interests of the government. Otherwise, the premature praise for Agbal & Co. is likely to be quickly exhausted.

 

Rate this article


Thank you for your rating. Your vote:
There is no rating yet. Be the first! Current average rating: 0

Leave an answer

Your e-mail address will not be published. Required fields are marked *