BY ALAATTIN AKTAS
The Central Bank (CB) raised the policy rate by 5 points from 30% to 35%, in line with forecasts. The CB hiked the policy rate by 26.5 points in five meetings.
There is no significant difference in the PPK statement this month compared to previous statements. But the expression about the oil prices driven risk of geopolitical developments in inflation outlook is critical.
The CB is concerned over the developments in Gaza. The CB, which emphasized that the war will adversely affect inflation in the Turkish economy due to the possibility of a hike in oil prices, cannot include other concerns, which it calculates, in the PPK statement.
The CB is also concerned over the impact of our relations with the West, which are likely to strain following President Erdogan’s statement that Hamas isn’t a terrorist organization on our economy, and it calculates the possible risks.
The CB has tried to keep FX rates within limits for months. Finding fresh FX is the easiest way to do so. But it cannot be found.
The classical direct new investment isn’t expected. Billions of dollars won’t also flow at once through that. But portfolio investments, which can be a remedy for us in the short term, don’t flow as well. Moreover, we put a spoke in our wheel and even blocked that way with the role that we cast for Turkey regarding the Middle East problem.
Now, the remedy to attract portfolio investments is providing higher interest rates to foreigners. After all, the taken step reaches this point.
Foreign investors sniffed at a 30% policy rate. We will see how they look at the 35% interest rate in time. But we shouldn’t be that optimistic as foreigners know that Turkey cannot stop at 35%, and the policy rate will increase more. So, they will bide their time to purchase at the peak point.
Different periods shouldn’t be used when forging a link between the interest rate and inflation.
Released inflation is generally compared with interest rate.
The interest rate covers the future, while released inflation is about the past.
That’s why it’s necessary to consider future inflation and what it can be for comparison.
The maturity of deposits is generally less than three months in Turkey. It is even 32 days. But there is no 1-month or a 3-month inflation target. We should consider the 1-year period.
If the policy rate remains at 35% and the deposit interest rate nears it, inflation and policy rate will barely be at par in the next year.
There can be a positive real interest rate in a 1-month or 3-month period or vice versa. However, the positive real interest rate can only be caught in October 2024 annually under current conditions. Of course, this is based on realizing the most positive inflation scenario.