The Central Bank (TCMB) has announced a critical interest rate decision. The Monetary Policy Committee (PPK) of the Central Bank, in its second meeting with its new president Hafize Gaye Erkan, raised the policy rate by 250 basis points to 17.50% from 15%. The interest rate hike fell below expectations.
Professor Dr. Daron Acemoğlu from the Massachusetts Institute of Technology (MIT) finds the Central Bank’s increase of interest rates by 250 basis points to 17.50% ‘worrisome.’ According to Acemoğlu, the government may not even be able to ‘sustain the economy’ until the local elections.
It was expected that the Central Bank would raise the interest rate to 20%. However, this expectation changed to 17.50% due to news of ‘hot money inflows into Turkey following agreements with the United Arab Emirates (UAE).’
Former chief economist of the Central Bank, Hakan Kara, had written that the $51 billion agreements with the UAE were made ‘to counteract the potentially negative effects after the interest rate decision.’
Turkish economist have made pessimistic evaluations about this interest rate hike.
“The Central Bank’s 2.50 percentage point interest rate hike and tying the future of inflation and the economy to money coming from the Middle East is truly concerning. Unfortunately, this highlights that the current policies are solely focused on bringing short-term resources.
I still don’t understand how foreign financing can control inflation. Does anyone have a theory for this?
A deeper problem: It is evident that nothing is being done to address Turkey’s structural problems. Perhaps the economy will survive until the election with minor interest rate hikes and resources coming from the Middle East, or perhaps it won’t. But it is certain that the country’s economic potential is being squandered. What a pity.”
