A more unconventional monetary policy in Turkey?
When developing Asia was in crisis in the 1990s, the world valiantly upheld monetary orthodoxy. Then Europe went into crisis in 2008, and world leaders came up with unconventional monetary policy. That’s when we all learned about monetary easing and negative interest rates. So the poor were forced into discipline, while the rich could indulge in “helicopter money.” Well, guess what? Turkey’s leaders may now want some of that sweet “unconventional” stuff too.
The terms of four members of Turkey’s Monetary Policy Council are ending early this year, starting with Governor Başçı in April 19. I am told that the Central Bank has followed a Turkish version of unconventional monetary policy under Başcı’s leadership. Why do they call it that? Beats me. Maybe, in an era of central bank activism, our Central Bank’s lethargy is interpreted as unconventional policy. To me, Turkey’s Central Bank has been about increasing the level of uncertainty in Turkish financial markets. As far as the role of central banks go, a destabilizing one is certainly unconventional, to say the least.
A lot of people are asking about what happens next. Should we expect a break with the already rickety past and wait for a new chapter of super-unconventional monetary policy? In a time when even the West and countries like Japan have jettisoned orthodoxy, I think that is very much possible. How unconventional? Say the new governor decides to raise the inflation target. Why not? The target has been missed so many times lately that it no longer builds credibility, but erodes it. There is no policy package to justify the long-forgotten inflation target.
Also, the current environment of anemic growth in Turkey is not good for fierce inflation fighters. Anemic growth means that it is time for a more unconventional monetary policy. Here is our new orthodoxy. Is there a limit to unconventionality?
Turkey is a country that needs foreign savings to maintain its per capita GDP level. Anything beyond the realm of central banking when it comes to unconventional is harmful for fund inflows, if you ask me. That is bad for the welfare of Turkish citizens, which in turn, is bad for the politicians who are going to appoint the new governor.