Nonautonomous Central Bank
The general elections will be held in 2023 in Turkiye, and the pre-election popular economic policies are installed in Turkiye. The government is looking for more financial resources to implement expansionary fiscal policies. Considering that the low predictability in the Turkish economy, the foreigner investors are hesitant about increasing their investments in the country while high interest rates are asked from Turkiye for getting loans in the international fund markets. The Turkish central bank got loans from international funds with a high interest rate of 8% for USD in the recent months. Subsequently, an important alternative option for the Turkish government to finance the expansionary economic policies before the elections is to force the Central Bank to print money. It seems quite strange in general while if the independence of the Central Bank is damaged under an authoritarian management, it can be considered as normal. It seems like the Central Bank of Turkiye has lost its independence, and it means a weak monetary policy intervention.
Trading under Uncertainty
Nonautonomous central bank creates a weak monetary policy and causes a high risk in a national economy of getting adverse impacts from external shocks. Especially, if a developing country has a nonautonomous central bank, a small interest rate increase by the FED in the US might create a deep negative shock. People might face a less valued national currency and high inflation in a short-term. Turkish people have been facing this situation in the last two years after the Central Bank of Turkiye decided to make the decisions instructed by Erdogan to lower the interest rate while the inflation was getting higher and higher globally due to the coronavirus outbreak. From October 2021 up to now, the Central Bank is implementing this irrational policy obstinately. Interestingly, interest rate declaration is not creating an influence on the expectations in the Turkish economy, and a very weak reaction is given to the interest rate decisions of the Central Bank. In other words, the Central Bank of Turkiye has lost a very powerful tool used fighting against inflation, and the Turkish economy is not well-defended against the external monetary shocks.
A weak monetary policy implementation causes a high level of uncertainty for traders because facing a foreign exchange currency crisis, suddenly increasing prices, and even worse facing a hyperinflation economic environment is quite possible. Under this uncertainty, it becomes very difficult to make decisions for traders because they cannot predict what prices they are involved would be in the next day. Even it is difficult to make a proper estimation of logistic costs because the gas prices might go up by 5TL shortly. Frequent fluctuations and high inflation are not desired because they blind investors, producers, and traders, and even it becomes impossible to operate under a high level of uncertainty.
What to expect
The only issue about the Turkish economy is not the current situation. Some optimist politicians and economists believe that a change in the political setting might stimulate the Turkish economy and a quick recovery might happen if the opponent parties win the elections. However, the high deficit in the international trade, the lost capacity in production, the lost motivation and belief of the Turkish people might need longer years to be fixed. Even further, there is no strong political sign of winning opponents at the current time. The opponents are expected to discuss economic difficulties the Turkish people face while they are strangely discussing some non-economic issues like allowing women to wear headscarves at official places. It is almost impossible to guess what will happen in Turkey until we learn the results of the elections to be held in May, 2023.
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