BY ALAATTIN AKTAS
The Central Bank’s (CB) policy rate rose from 35% to 40%, which was correct. If the policy rate rose to 37.5%, it wouldn’t create a positive impact. Moreover, the rate hike would be meaningless as the messages, which have been given for a long time, would be repeated.
It is controversial if the current rate is sufficient, especially for the fight against inflation. But other interest rates, in line with the policy rate of 40%, can direct foreigners to domestic government bonds, which we will see in time.
A rate hike of five points to 40% isn’t surprising. Some details in the PPK statement make this rate meaningful: the roadmap announcement for the first time.
The most salient difference between the last PPK statement and previous ones is the expression that the rate hike has come to an end. Of course, the CB gives signs for the future. Let’s specify these signs.
>> A rate hike below five points should be expected for December. It will probably be 2.5 points. The monetary tightening can be completed at 42.5%, or the rate hike can halt at 45% in January. But, certainly, the rate will no longer increase by five points.
>> The policy rate, which will probably be 42.5% in December and 45% in January, will remain steady until permanent price stability is achieved. It’s unknown when it happens. But it’s clear that there won’t be stability until the election. Moreover, the CB clearly mentions it and says inflation will peak in May. The policy rate will remain unchanged until the end of August-September when the annual inflation sharply decreases with the base effect under normal conditions.
>> The CB’s statement means the policy rate won’t decrease for around a year. But it’s highly controversial if the CB is strong enough to do that. There is a concern that the policy rate may be cut again towards the local elections. However, it’s noteworthy that it isn’t considered possible and is just a claim. Turkey is already far from eliminating the damage caused by rate cuts from 19% to 8.5%, even by hiking the policy rate from 8.5% to 40%. We want to hope that we have seen what the rate cut costs.
Statements following the PPK meeting generally consisted of vague and open-ended expressions. There are also such expressions in the latest statement. But we had a chance to see the clues about what decision will be reached in the upcoming meetings for the first time after the recent empty statements.
As I summarized above, the rate hike will slow and halt after one or two meetings, and then the interest rate will have a horizontal course.