February inflation helps Central Bank gain time
Because of expectations that the U.S. Federal Reserves (Fed) will delay rate hikes and the European Central Bank will lower rates, an optimistic atmosphere is dominant in global markets. When small scale drops in the inflation rate are added to this, then we see that this atmosphere is also dominant in domestic markets.
Recent developments have provided backing for the Central Bank in its long-term “inactive attitude in interest rates.” In other words, nobody knows how long this will continue but the inflation rate of February seems to have given time to the Central Bank to maintain this attitude.
Thus, it is considered certain that at the March meeting of the Monetary Policy Board (PPK) of the Central Bank, there will be no change in interest rates. While it is known that the Central Bank has been constantly delaying the simplification step it will take in the interest rate corridor application, recent developments are seen as excuses for new delays.
When viewed from another angle, Central Bank President Erdem Başçı, who has preferred to remain inactive in interest rates for the last term, will remain immobile also in March and finish his term in office. The PPK meeting in April will be held after Başçı’s term expires on April 19.
At this point, the only exemption is in the case an appointment is not made on time to replace Başçı; then he will have to remain in office until the new president arrives. In this case, he may preside over the PPK meeting in April but even so, it is assumed that he will shy away from taking any concrete steps.
Taking into consideration the facts above, it is expected that Başçı will definitely not be re-appointed. This is because lobbies in Ankara are signaling that President Tayyip Erdoğan would not accept a government decision for Erdem Başçı to keep his post. If there is no reconciliation between the president and the prime minister and Başçı is re-appointed, this would be a serious surprise for all of us, as well as market players.
Regardless of who will be appointed as the next bank president, the policy the Central Bank will adopt from now on is a serious matter of curiosity for the markets. The policy preference of the new president is more important than who the president is. In this context, it is a concern that a president and PPK members would be appointed who are in line with the president’s and his advisors’ opinion of “growth, whatever it takes.”
Markets know that the only authority that can prevent politicians from taking risky steps in monetary policy is the Central Bank. In other words, a central bank administration that can act independently is extremely important.
Actually, politicians all know this, even though they argue the opposite, that central banks alone cannot provide growth. A central bank administration that would lower interest rates abruptly in line with the desires of the president - just for the sake of appearing pro-growth - is the biggest fear of the markets.
We will wait and see whether the new central bank administration will focus on fighting inflation, its main duty, and provide a foreseeable future to markets.