Central Bank puts the gun down

The Turkish Central Bank has been signaling that “its pistol is on the wall” by creating an atmosphere that it would make “sufficient interest rate increase” for investors for quite some time now, similar to the famous monologue of Anton Chekhov.

On Dec. 14, it seemed as if they pulled the trigger. But they did not fire. This is exactly what the situation is like.

It watched the consumer price index hit 13 percent and producer price index 18 percent and the rise of the exchange rate for a long time.

But exactly when it was thought it would “reach the pistol on the wall,” it “put down the gun before firing it.”

It put down the gun, because there is no explanation for its inaction just as there is no explanation to why it makes a small hike, by 0.50 points, when it takes action.

It has not been 24 hours since the U.S. Federal Reserve, which has not reached its target of 2 percent inflation, raised its interest by 0.25 points. On the other hand, as a Central Bank with an inflation figure that had passed its own effective interest rate, the Turkish Central Bank was as if making fun by raising its interest rate only 0.25 points more than Fed.

Fed forecast that in the medium term the inflation will come to 2 percent, so hiked Fed Funds rate by 0.25 points, and on top of it is pointing toward three interest rate hikes on the same scale in the next year. In other words, it means 1 point in one year.

Our Central Bank makes only 0.25 point more increase than Fed despite the 3.5 percent core cost increase in total in two months since its last meeting in September.

The core inflation’s momentum in the last three months in Turkey exceeded 15 percent yearly. In contrast, the Central Bank does not even give interest rate hike signals toward the future on its meeting notes, let alone increasing interest rates sufficiently.

The fact that the Central Bank shows it cannot use its “interest gun,” means “putting the gun down.”

The Central Bank, which has said they have seen a rapid increase in credit, is externalized by “the high levels of inflation and the cost development in the recent period, which has increased expectations and risks.”

The Central Bank increased the interest of the “Late Liquidity Window,” which it gives money to after 4 p.m. This means it can drop its interest rate anytime it wants.

Without having the need to make any Monetary Policy Committee meeting, it is in a position that right after the next day it can give money at 9.25 percent.

This is the place of a country whose inflation hits 13 percent and its monetary authority says “it keeps tight monetary policy.”

Damaged Turkish Lira

Not even 10 days passed and the Central Bank said they aimed basic funding medium to be a one week term repurchase agreement and declared the 2018 monetary and rate policy.

An economic unit that takes a central bank seriously waits for this to be practiced.

After the decision on Dec. 14, it is very clear that it cannot start making the overnight funding through normal ways, let alone the one week repo channel.

The fact that the Central Bank cannot make sufficient interest rate increase, gives a strong “I am aware” message. Or giving tightening signal for the future means that it “put down the gun.”