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The author is the President of Queens’ College, Cambridge, and a consultant for Allianz and Gramercy
After trying to counter domestic and foreign economic ideas by repeatedly cutting interest rates, Turkey chose this week for new unconventional ways to restructure its finances.
Whether the authorities have done much good in the end this time comes to a simple question: can Turkish families and companies see the “regional breaker” as a bridge to many of the leading causes of economic and economic instability or, rather, as a destination where will it soon be unstable?
It is difficult to say in words how the Turkish financial markets were disrupted by Monday afternoon. The lira had depreciated to more than TL18 for every US dollar, meaning that it was worth about half in just two months.
The risk of inflation is growing, as has the trade crisis despite the central bank’s intervention, thereby reducing its foreign exchange reserves.
It was only a matter of time before all of this again led to an increase in inflation already exceeding 20 percent. A growing number of people were choosing to save their savings by converting the lira into dollars and other hard-earned currencies (which economists call “dollarization”).
The reason for all of this was a 5 percent reduction in the cost of domestic plans since September at a time when internal and external events are about to rise. The inflation rate was rising, the currency was under pressure and the conditions for the global monetary policy began to strengthen, especially in developing countries.
In an effort to break the cycle, officials decided this week to get started hard work which is best described as an interest rate interest rate with a guaranteed interest rate when the lira deposit is calculated in a solid currency.
In addition to reducing incentives to increase funding, this approach seems to have three advantages that are of interest to Turkish officials. First, it avoids the rise of low interest rates and poor economic performance. Second, because the guarantee applies to 3-12 month deposits, it encourages the long-term sustainability of such deposits. And third, it contributes to reducing stress and rising inflation.
All of this at the time, prior to the announcement, the money was selling the “overshoot” segment according to many financial options.
These benefits come with many risks. This approach puts central bank / bank accounts in a larger economy as long as there are other ways to deal with rising prices and reduce the stress that comes with money away from dollarization. If the machine fails, it will compromise the reliability of the developers, making it difficult for the next process to run quickly even if it is complete and efficient.
It is the largest group of Turkish lira keepers who will, in a few weeks, realize its effects. If they believe in the response to the policy and worry a little about the collapse of the mortgage, they will encourage others to buy domestic, domestic and foreign currency. The government can support this policy by showing that recent developments do not end on their own but are a bridge to further development.
This includes rising inflation for the central bank which, meanwhile, is important but not enough. Turkey will also need to look for other internal anchors, such as strengthening the monetary policy, as well as foreign ones, such as the agreement on the IMF program that provides all foreign exchange reserves.
All of this will have to be done to avoid the rigors of financial management that could undermine the history of power, and the growing openness of growth which, economically and economically, exploits “many competitive forces” in Turkey.
Through new unconventional methods, Turkey has acquired itself as a manufacturing product. This will not change for the better unless Turkish citizens believe that their financial crisis is over.
This only happens if the government is rapidly shifting to a more sophisticated – and, yes, more sustainable – policy. Failure to do so would be detrimental to the country’s economy. Apart from that, there are limits to continuing to violate economic and financial laws.
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