The cost of the expansionary policies carried out until June, taking into account the possibility of high inflation levels due to election concerns, cannot yet be fully calculated. However, it is also not discussed how the virtual relief brought to the economy by the monetary expansion between September 2021 and May 2023 gave the government political power and won elections as planned.
Mehmet Simsek, who took the helm of the economy immediately after the May elections, started by declaring the period of unrestrained monetary expansion, which had exacerbated inflation far beyond expectations, “irrational”. In a short period of time, the positive effects of the controlled monetary tightening have begun to be seen and the tendencies in favor of the TRY in the opposite direction of dollarization have started to be clearly seen. Last week, the Central Bank raised the policy rate by 500 basis points to 40 percent, double the expectations of economic circles, and increased its determination to fight inflation.
The CBRT’s decisive interest rate hike steps have once again demonstrated after bitter experience that lira appreciation can only be achieved by making the TRY interest rate attractive. During the period (between June 22 and November 23), when the effect of Hafize Gaye Erkan, who took office in June, and the members of the MPC who were trusted by the market who took office afterwards were monitored in interest rate decisions, the policy rate was increased by 31.5 points. Although the policy rate, which was raised from 8.5 percent in June to 40 percent last week, is considered insufficient by some economists in the face of inflation, it is seen that the TRY has started to gain strength and dollarization, including the foreign currency protected accounts, has started to resolve.
The theoretical background of the irrational period, defined as the “liraization strategy”, is still available on the Central Bank’s website, embedded in the Central Bank’s monetary policy framework document for 2023, with a 60 percent liraization projection. The monetary policy framework for 2024, which will probably be published at the end of December, will also show how the highly anticipated disinflation process will proceed.