Hey! Tayyip! Leave them bureaucrats alone!
The Central Bank’s rate-setting monetary policy committee (MPC) meeting on Thursday is likely to be a non-event.
While he implied that reserve management policies could be used early in the month, Gov. Erdem Başçı said, in his speech at the Bank’s General Assembly on April 17, that macro-prudential easing was the banking regulator’s responsibility, signaling that reserve requirement ratios (RRRs) would not be changed.
Only three of the 18 economists surveyed by CNBC-e expect RRRs to be lowered on Thursday. The Central Bank would do the right thing by not touching RRRs, said the rest. The Bank saw back in 2012 that raising them szx not effective in slowing down credit growth. Only when the banking regulator intervened in June did credit growth start to slow down. There is no reason to believe that lowering RRRs would work now.
Besides, higher credit growth would not help the Turkish economy in attaining the economic adjustment it needs: Turkey needs to decrease its dependence on external financing by consuming and importing less. We need lower, not higher, credit growth for that. And we definitely do not need lower interest rates.
Citi economists argue that the challenging inflation outlook calls for higher, not lower, interest rates. Besides, their statistical analysis suggests that real rates should be at around 4.5 percent this year – the real return on the benchmark two-year government bond is currently 2.2 percent. Finally, premature easing would revive pressure on the currency and raise the chance of a sudden stop in capital flows.
Despite all these arguments, two of the three economists expecting lower RRRs on Thursday also believe that the Central Bank will decrease its overnight lending rate. I am sure they concur with Citi’s points, but they are probably betting that the Bank will have to yield to pressure from Prime Minister Recep Tayyip Erdoğan.
Erdoğan has openly been calling for the Bank to lower rates for a while. As it seems likely that he will run for President this summer, he cannot afford the economic slowdown I continue to expect. He has recently combined these calls with challenges to the Bank’s structure as well as threats on his staff.
In his April 14 column in pro-government daily Star, Erdoğan’s chief economic adviser, Brave Cloud, argued that the Central Bank’s legislation would need to be changed. In the Bank’s General Assembly on Thursday, all eyes were not on Başçı, but two of his deputies supposedly close to Fethullah Gülen. There were rumors that they would resign. They didn’t.
There are similar rumors of a major purge of Gülenist bureaucrats from economic policymaking institutions. Those believed to be anti-government were already fired en-masse during the Gezi protests. Another witch hunt would cripple these institutions – although many were not placed based on their merit in the first place.
All in all, it’s just another brick in the wall. I wonder when the crumbling wall will fall down. By the way, Happy Easter, and #RememberEsther. And #RememberBerkin, too.