Kerim Rota: Even the Central Bank did not know of the interest rate cut until the last minute
Kerim Rota, who is one of the founding members of the Future Party (Gelecek Partisi) is very experienced in the banking sector and is now the head of the Economics Department in the party. Future Party has announced two action plans on economics and these plans were all organized by Rota himself.
Nowadays, everyone is talking about the elections. We do not know the exact date but it will probably be in spring, meaning there is less than eight months. The economy's indicators are the worst since 2002 when the AKP took power. Despite the economic crisis, will AKP and Erdogan be able to win the election? Will Exchange Rate protected deposit accounts and similar measures help the AKP?
Can there be such a thing as “Exchange Rate Protected National Currency”? Isn’t it an oxymoron?
It is definitely an oxymoron. Keeping the value of the national currency competitive is always a tough job for emerging countries' central banks and governments. At the same time, they also have to offer real yields in order to attract local and international investor demands. Keeping inflation under control is another tough task for them.
If those tasks are a burden for a central bank or government, the solution is simple.
“Index your local currency to other currencies.”
Indexing the local currency to other currencies is actually losing sovereignty. What the AKP did by introducing the FX-protected deposit accounts was to index the Turkish Lira to the US Dollar and lost national sovereignty. So yes, calling FX-protected deposits “national currency” is a big oxymoron.
Moody’s downgraded Turkey’s rating to B3. What does it mean?
Unfortunately, Turkey now has the lowest (credit) rating in its history. B3 is the closest level before the “very high credit risk” level. It is obvious that this rating will keep the outstanding and potential investors away from Turkish assets. We believe that the big credibility gap between the Central bank and the government is the main reason behind this rating.
Will it be more expensive for Turkey to find new loans? How will it affect the economy?
Definitely. With this rating, Turkey will again be a “net payer” on foreign flows. The new flows will demand a higher risk premium. So the Central Bank will continue to finance the current account deficit despite its already very low reserves. That means a higher risk premium is ahead.
Trading with the Russian Ruble… Who will it benefit most?
Russia will benefit the most. Russia is having a big surplus for its trade with Turkey. For Russia, it is a wise way to bypass hard currency sanctions. For Turkey, the only solution to benefit from this agreement is to have a sizable swap agreement with Russia. But we did not hear anything about that.
The Central Bank decided to decrease the interest rates to 13%. What does it mean?
I believe it is a purely political decision by the Central Bank to reduce the interest rates to 13% in an environment where consumer inflation is 80% and producer inflation is 145%. In fact, I think that even the top management of the Central Bank did not know about this rate cut decision until the last moment. If you consider that the Central Bank has taken decisions to tighten credits in recent months, this decision for the opposite could only have been taken by political directives.
There are rumors that up to $50 billion will enter the Turkish economy before the elections. If it happens will that money save the economy? Moreover, will the AKP be able to win once more?
So far, approximately $15 billion, which we believe the investor of the Akkuyu power plant has sent, seems to have created confidence in the government and the economic administration. This confidence seems to influence this interest rate cut which came after eight months. However, no money would be enough for policies that are unsustainable and are not based on reason and rationality. Even if this $15 billion provides 2-3 months of relief, it increases the risk of deepening the problems later on. In the end, short-term debt resources will not be enough to manage an economy of $800 billion while ignoring the rules of economics.
*Born in Istanbul, Kadikoy in 1989, he has written for many different newspapers and magazines. He received his Cultural Studies Master's degree from Bilgi University. His first book “Futbol mu? Yok daha neler” was published in 2012, which was a compilation of his many interviews. He analyzed Resat Nuri Guntekin’s political views in his own material in his second book “Operada Mucella Suzan,” which was published in 2019. His first novel “Aksamlar Artik Serin” was published in November 2020, and his second novel “Biraz Ses Olsun” was published in January 2021.