‘The impact of austerity will be felt after the election’
[ad_1]
The Central Bank of the Republic of Turkey (CBRT) last increased the interest rate by 250 basis points to 45 percent in January. In February, it left the policy rate constant at 45 percent. According to the economics professor, this interest rate increase is not enough.
Koç University faculty member economist Prof. said that economic policies will be given the toughest test after the local elections. Dr. Selva Demiralp said the following from her X account:
Because:
“one) The effects of austerity policies come with a delay. The effects of the steps taken after May 2023 will be felt in the post-election period. So how long will this be allowed? At what point will the CBRT have to “throw in the towel”?
2) Capital inflows, which are the main sweetener to alleviate the bitter prescription, could not gain momentum despite the 36.5-point interest rate increase. The main reason here is that the trauma created by the policies implemented before May 2023 has not been erased from memory and the concern that there may be a return at any moment. This being the case, it seems that we will feel the real bitterness of the bitter prescription in the second half of the year.
3) The central bank increased the interest rate by 36.5 points. As for the question of whether it is enough: While the headline inflation is 65%, if you increase the policy interest rate to 45%, there is a real interest rate of -20 points (-10 points if you calculate it from compound interest). If it were sufficient, inflation expectations would begin to fall, demand would not be brought forward, and there would be no demand for foreign currency. So the dose is not enough. With this awareness, the CBRT went for additional tightening with macroprudential measures. Taking these steps, especially in the pre-election period, has a high signal value. On the other hand, if you say that the interest rate should remain at this level and let’s complement it with macroprudential measures, you will be throwing away the much stronger signal effect of the policy rate, which is the main tool of monetary policy, even though you ultimately aim for the same economic slowdown.
When the infection spreads throughout the body, the antibiotic dose may not be enough, even if it is high. What if your body can’t handle a further dose increase? This is where the difficulty comes into play. If you increase the interest rate enough, there will be a serious slowdown in the economy; if you do not, inflation will remain at high levels. The Central Bank’s job is very difficult. But wasn’t the main problem that inflation was allowed to reach such uncontrollable levels?
Economic policies will face the toughest test in the post-local election period. Because:
1) The effects of austerity policies come with a delay. The effects of the steps taken after May 2023 will be felt in the post-election period. So how long will this be allowed? At what point did the CBRT “towel…— Selva Demiralp (@SelvaDemiralp) March 15, 2024
[ad_2]
Source link
