The PPK did what markets were expecting. We do not know what Prime Minister Recep Tayyip Erdogan thinks about this decision yet. He is probably not very happy, since he clearly wants the central bank's rates at much lower levels. Another harsh criticism directed against central bank management would not be a surprise, but will simply confirm his intention to change both economic policies and management.
Tuesday, I wrote in respect of this critical interest rate decision that, although "Mr. Erdogan is not easing up on the pressure he is putting on central bank managers, I do not think any further room actually remains for an interest rate decrease." I added that if a limited decrease is decided upon, this will be perceived as "a sign of weakness in business circles," and if interest rates are kept unchanged, central bank managers must be ready to face "the fury of Mr. Erdogan once again." Many commentators considered this decision a risky step, and I agree with them, but Mr. Erdogan's reaction might be rather moderate since interest rates have been lowered once again, albeit not enough in order to satisfy the prime minister.
I think that the
I inserted a long quote to avoid any misinterpretation. The bottom line of the central bank's argumentation is that lower interest rates present no risk of demand pressure on prices in the future, even though real interest rates were near zero. It is true that the calm continues reining in the exchange rate market, in a way comforting the central bank, since no depreciation of the Turkish lira is in sight, all the more since the
Such an event will put the central bank in an inextricable situation, since the current inflation around 9 percent is still far from its target of 5 percent and inflation expectations have increased in recent weeks. It is well-known that it is much more difficult to increase interest rates than it is to cut them, particularly given the heavy political pressure on the central bank. At the end of the day, I think the central bank made a risky decision and, most probably, it will be obliged to increase its policy interest rate in the near future -- if, of course, today's management is still in place.
SEYFETTIN GÜRSEL (Cihan/Today's Zaman) CIHAN
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