As we start the week, I think it would be useful to take a look at the Central Bank’s statements last week.
I have no doubt that the statements regarding the Real Sector and Banking were made for foreign markets, not domestic ones. The CBRT management wants to direct the perception by making statements like “things are getting better” based on the data set they have. In fact, we have to accept that central banks have an impact on rational expectations. However, I can say that by making these statements at a time when the recovery has not yet begun and the negativities that will be experienced before the recovery process just begins, the CBRT is risking its reputation.
So far, the Central Bank management has fallen far short of the confidence created by the Naci Ağbal era. It calls the rate hikes “a strong stance in monetary tightening” but the policy rate is still at least 10 points behind expected inflation. Obviously, it cannot hide the fact that it is spinning its wheels until the elections and trying to strangle demand through loans.
Ignoring the fact that the main cause of inflation is borrowing to finance rising public deficits and the ever-increasing money supply, it is clear that they do not fully realize that trying to stifle demand to stop prices will not yield the expected results and will eventually lead Turkey into stagflation.
I say “not fully” because they know that growth is at risk and that exchange rates could spike at any moment. But they do not expect both to happen at the same time. Because of energy prices, it is now clear that we will run a current account deficit even as growth slows down. Therefore, the possibility that interest rates and exchange rates will rise together and create a vicious circle with rising inflation is overlooked.
I see very clearly that inflation is caused by a very costly public sector. With its buildings, facilities, vehicles, employees, cleaning, security, travel and naturally inefficiency, it looks like “too much money for too little benefit”. It is difficult to find resources for the public sector, which costs billions of liras per day, and impossible to keep up by printing money.
The duty of the state is to reduce the costs of those who produce goods and services, but in its current state it is burdening them. It is possible to explain with a single example: Around 9 million containers enter and exit Turkey every year. Each container is unfairly charged 550-600 Euros in average at customs areas. Authorities respond to complaints by saying “there is nothing to do, private companies manage the customs areas”. If the state, which should prevent injustices, cannot intervene despite its huge organization, it means that it creates inefficiency. It is obvious that the increase in costs caused by the nearly 5 billion Euros of unjustly taken money annually is reflected in prices. It is possible to multiply these examples.
There are also bureaucrats who do not respond to correspondence. The state organization is expanding and expanding, but citizens’ applications are not responded to or are responded to after it is too late. This is because they do not know how to answer the question. They cannot ask their superiors. Sometimes they give a “rejection” answer immediately without investigating, which creates irreparable damage.
Inefficiency is the most dangerous disease in the world. But because the caravan continues on its way, everyone thinks that things are going well. As far as I understand, the Central Bank is in the caravan and therefore cannot see the issue clearly.