That’s how the policy rate cut is!


The Central Bank’s policy rate was cut for the first time this year. It was reduced from 14% to 13%. Inflation hovers around 80% while the interest rate is at 13%.

I read the statement following the Central Bank’s Monetary Policy Committee meeting. There was stated why the interest rate was reduced and which factors caused the cut. To be honest, I can’t understand the reason.

Great Turkey is now in a position where economic theories are being tested!

I’ve always written that the first button was wired wrong in September 2021 and then all balances changed. All the buttons were done up wrong, and the shirt became crooked. Now, we are buttoning the shirt even more wrongly. Think about how it will look!

The market immediately gave a reaction. Foreign exchange (FX) rates increased. This is because you say “I reduce the return of my national currency some more, I devaluate it,” when you cut the interest rate.

Devaluation of a national currency, TRY, means appreciation of FX against that currency.

This happened as soon as the decision was announced. USD/TRY, which was held below 18.00 somehow, has exceeded this level.

If the reason is asked, it will be answered that ‘the decision wasn’t taken for devaluation of our currency, it was taken for the decline in the loan interest rates and the market boom.”

Is the Central Bank’s policy rate cut the only way to reduce loan interest rates to revive the market?

What will happen when FX rates increase? How will the cost of the FX rate hike be met?

FX rates have increased and will likely rise more. I don’t know if the sufficient FX comes from Russia or the Gulf countries to pressure the FX rate hike. Let’s assume that it came, and we prevented the FX rate from a further increase, and we manages to hold USD/ TRY at 18.00.

Wouldn’t it be better if we reduced the USD/TRY through that FX instead of the interest rate cut?

Why did we actually cut this interest rate?

The FX-protected TRY deposit account (KKM), which is a ‘hand-grenade without a pin’ is the biggest problem for the economy. If the FX rates increase further, more payments will have to be made for the KKM. It’s noteworthy to remind that the FX difference which had to be paid by the Treasury amounted to TRY 60.6bn in the first five months of the implementation.

As long as the FX rates increase, the Treasury’s burden will surge.

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