Erdogan finished the game: “Turkey is waiting for the economic crisis and protests”

Manual management of the Central Bank did not bring to good

The Central Bank of Turkey (CBRT) for the first time this year lowered the interest rate – from 14% to 13%. Today, for Russia and its economy, what happened is of particular importance, in contrast to the previous, “pre-sanctions” times. The volume of bilateral trade between Moscow and Ankara is growing rapidly, and the Russian Ministry of Finance is clearly not opposed to replenishing the funds of the NWF in Turkish lira. However, the Turkish national currency continues to depreciate, which means that you need to be more careful with it.

The Turkish regulator justified its decision by a slowdown in economic activity in the country, uncertainty about global GDP growth and increased geopolitical risks. As the CBRT notes, against this background, “it is important that financial conditions are favorable in terms of accelerating industrial production and a trend towards increasing employment.” Meanwhile, the Turkish lira reacted quite traditionally to the event, declining from 17.97 to 18.07 per dollar. Earlier, in July, consumer inflation accelerated to 79.6% (year-on-year), hitting a new all-time high since 1998.

President Erdogan urges not to change the course to lower the key interest rate, while “increasing investment, employment, production, exports and a positive current account balance”. Over the past two years, the national leader has fired three heads of the CBRT, who dared to raise the rate against his will. Many business people just shrug their shoulders in bewilderment. In Turkey, “the fundamental laws of the economy are ignored,” Mohammed El Erian, one of the heads of the insurance company Allianz and Barclays, expressed their position.

The 14% rate has been held since December 16, 2021, when the CBRT lowered it from 15%. This decision led to the strengthening of the dollar by more than 3%: the “American” for the first time overcame the mark of 15 lira. From March to September last year, the rate was 19%, then was lowered in four stages to a level of 14%, which the Turkish regulator has left unchanged until today. It is obvious that Ankara’s economic experiment contradicts the tight monetary policy of the world’s central banks: they raise rates to curb inflation and, as a result, support national currencies. Meanwhile, the Russian Ministry of Finance is considering the possibility, within the framework of the updated budget rule, of replenishing the funds of the NWF with the currencies of “friendly” states, in particular, Chinese yuan, Indian rupees and – attention! – Turkish lira.

“The situation with annual inflation in Turkey is close to catastrophic: the level is 20 times higher than the target, and if price growth accelerates to 100%, hyperinflation will officially begin in the country,” says TeleTrade analyst Alexei Fedorov. – The situation with the exchange rate is no better: in 2021, the Turkish lira fell against the dollar by 52%, in 2022 – by another 28%. Both of these trends, which the regulator continues to stubbornly ignore, will continue in the second half of this year and are likely to provoke a serious economic crisis in Turkey and massive social protests.”

For Russia, this experience is extremely useful, because in practice it shows what the rigid dependence of decisions taken by the central bank on the will of the first person leads to. To maintain the artificial growth of the economy, the financial authorities of Turkey are forced to increase the money supply more and more. In Russia, however, according to Fedorov, the Central Bank is in a fundamentally different position: the domestic regulator is too distant from the real economy, which he sees, rather, as a burden, an extra element that hinders maintaining price stability. So we definitely do not need to follow the path of Turkey – not just wrong, but disastrous. As for the idea of ​​​​buying Turkish liras that are depreciating day by day for their subsequent placement in the NWF, this is an unreasonably risky step, which obviously increases the vulnerability of the federal money-box.

“The National Wealth Fund will somehow manage without the lira, it should contain reliable assets, not volatile ones,” says financial analyst Sergei Drozdov. – The Turkish currency can be used in interstate trade and payment settlements, nothing more. So far, there are no prerequisites for its strengthening.”

Ankara’s financial problems sharply worsened in 2018, and their roots lie not so much in the economy as in politics. Erdogan quarreled to the nines with NATO allies, primarily with Washington, which doubled the duties on Turkish steel and aluminum. As a result, Drozdov recalls, the lira collapsed by almost 20%, renewing the historical low of 2001. At the same time, it was subjected to powerful speculative attacks from foreign funds. The situation was aggravated by the fact that Turkey’s gold and foreign exchange reserves were depleted: the outflow of capital from the country began even before 2018.