We are faced with many contradictions at the stage that such a wrong economic policy implementation has brought the economy to.
If the Central Bank lowers the interest rate, the money coming through carry trade will go back, people will return to foreign currency, which will increase the exchange rate. If the money coming through carry trade goes back, the Central Bank’s reserves will start to decrease.
If the exchange rate increases, exporters and tourism professionals will be happy, but inflation will rise as the increase in imported input prices will increase costs and therefore sales prices.
If the Central Bank does not lower interest rates, carry traders will continue to earn incredible amounts of money from the country’s resources.
If the government were to load up on taxes, this time, labor income earners whose purchasing power has already decreased will be completely devastated. Small tradesmen and SMEs will be in trouble.
If you get economic policy on the wrong track, the steps you take to correct the resulting deterioration will correct one side while damaging the other.
We have lived the past three years with such big mistakes. Now, what is important is how we will live the next three years.
Because the keystone of this knife-edge balance is that the exchange rate does not fluctuate too much. If the exchange rate increases, the carry trade is disrupted, the system collapses, and we return to where we started.
If the Turkish Lira appreciates further, this time the foreign trade balance will be disrupted (exports fall, imports increase). Enduring this high interest cost for a long time will ruin the economy.
In this case, what needs to be done is to slowly lower the policy rate and start reducing carry trade profits. However, this is a very delicate balance.
If wrong steps are taken and rapid interest rate cuts are made, then these incoming foreign currencies will flee, the exchange rate will rise rapidly and we will be at the same point again.
Mahfi Eğilmez: Faizi değiştirerek, kurla oynayarak, eflasyonu düşük göstererek, vergileri artırarak bu durumdan kalıcı bir biçimde çıkmak mümkün görünmüyor.
byu/a_e_i inTurkey
Posted by a_e_i