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Monetary Policy: Scratch it, ‘til it bleeds

Central Bank rate cuts will continue to the point of destabilizing the currency

Monetary Policy:  Scratch it, ‘til it bleeds

 

By the time you watch this broadcast, Turkish Central Bank will have lowered interest rates further (Thursday) by 150-250 basis points, at a time when inflation is rising. It shall continue to do so, until savers migrate to FX deposits, or withdraw them from banks. It is also possible that the policy of lowering interest rates will upset the exchange rate causing a balance of payments shock. Why is the Central Bank acting so foolishly? It is not! President Erdogan orders it to do so, because he believes lower rates led to lower inflation. His economy side kick Mr. Albayrak thinks he can endlessly stimulate the economy by lower rates. Turkish monetary policy is a clear case of fixing something that ain’t broken.

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