Pink picture in the economy
In the economy, we are going through another period when risks are being ignored and pink pictures are being drawn. From time to time, periods when markets only see the color pink are experienced and these periods are known to be opportunities for profit maximization.
Here, we are going through such a period again across the entire world.
Personally, I observe that this picture - also with the effect of the election process - is perceived to be much pinker domestically, and a much more optimistic wind is blowing.
Markets generally have a tendency not to perceive risks unless they become obvious, and instead buy much more optimistic data and assessments. When things start to go bad, exactly the opposite happens, and they plunge into an exaggerated pessimism. Now is not such a time, but nobody should doubt that when things start to go bad, the markets will adopt this exaggerated attitude, it has always been this way.
Well, in order to maintain stability in the economy, both the ups and downs should be curbed and extreme fluctuations should be prevented. For this reason, no matter what kind of an exaggerated stance the markets adopt, economic administrators should be calmer and more cautious. The exaggerated movements that the markets might make because of their nature can only be prevented by a prudent management of the economy. In other words, the stability achieved in the economy can be maintained with the cautious stance of administrators.
Up to now, we have seen that the economy administration led by Deputy Prime Minister Ali Babacan has continued this cautious and prudent stance. Because of this, economic stability has been maintained. However, we have been seeing recently that Prime Minister Erdoğan has become much more insistent on growth and has been putting much more pressure on the economic administration. The recent interest rate debates should be evaluated within this context and regarded as a reaction against the cautious and prudent stance.
The importance of fiscal discipline
The next steps that the economy administration will take from now on are very important. If they succumb to political pressure as feared, a pressure that will last until the presidential elections and even until the general elections to be held next year, then the risk of throwing caution to the wind grows. If the stability that has been achieved up to now is preserved and if a more cautious stance is adopted against the uncertainties of global developments, then the economy can again survive this process without any accidents.
Thus, we have come to a very critical junction. We see that, with the effect of elections, populist decisions such as the tax amnesty are increasing and the rise in expenditures is becoming more visible. These acts could bring along a risk of the disruption of the fiscal discipline that was provided up until now. Also, global economic uncertainties are continuing and there is the risk that global liquidities will be withdrawn sooner than expected.
Well, the economy administration should take into consideration all these risks and in order to maintain economic stability should be acting cautiously, as it has done up until now. In such a critical time, to make an interest rate reduction of 1.5 to 2 points in the June meeting might mean throwing caution to the wind and taking the economy on an unnecessary adventure.