Why has the Board been so unsuccessful in ensuring price stability?
Their first and most important mistake was to opt for a gradual interest rate hike instead of a shock rate hike, thus insisting on extremely negative real interest rates for months.
Secondly, transparency, which could have reduced the discussions on the inflation data announced by TÜİK, could not be provided. TÜİK did not comply with the court decision and did not disclose the prices in the list of items. However, TCMB continued to act as if there was no such discussion on the inflation data. In fact, the accuracy of TÜİK's inflation data was confirmed in the last inflation meeting. In addition, it was ignored that the estimates from the TCMB market participant survey were far below the inflation realized for months and it was argued that inflation expectations had decreased according to the results of this survey. As such, the 'Board' could not inspire confidence in monetary policy.
Thirdly, statements were made supporting the Central Bank president. However, ten days after these statements, the president was dismissed. This reinforced the idea that if the current economic management does not reduce interest rates early, they may be dismissed immediately, just like Naci Ağbal. The expectation that interest rates will decrease soon has been strengthened.
Fourth, while expectations were so distorted, the CBRT remained loyal to its previously determined interest rate hike plan. However, it should have tightened further and should not have stopped short of raising interest rates to 60%, with the expectation that fiscal policy would continue to be expansionary.
Finally, although inflation is a monetary problem, this fact is ignored and claims are made that the CBRT has failed to provide price stability because there is no support from fiscal policy, and that the CBRT has not actually done anything wrong. This has supported the CBRT, which has not tightened enough and has tightened very slowly, to continue on the wrong path. In fact, this support continues unabated.
Under these conditions, that is, due to the support given to the wrong and the CBRT continuing to refrain from sufficient tightening, I do not see it possible for the CBRT to reach its inflation target of 14% by the end of 2025.
✒️Tunç Şatıroğlu
