Tying up some loose ends on Turkish monetary policy
I have promised I won’t write Turkish monetary policy for a while, so this is my chance to tie up some loose ends as well as expand on this week’s Hurriyet Daily News column.
To start off lightly, since I am banned from the Bank’s monthly meetings with bank economists, I did not hear about Basçi’s recommendation right away, but once I did, I paid a visit to “Beyond the Apparent” as soon as I could. There is a coffee table book for the exhibition as well. I bought one when I visited the exhibition, which I am planning to send to the Governor for an autograph.
Coming to more serious matters, I won’t have to say much myself, as my readers, who have posted excellent comments at the Daily News website, will do most of the talking. Let’s start with the Central Bank’s multiple objectives. Here is what bankista has to say:
CBT’s main unorthodoxy is this: they try to direct fx level, inflation, c/a deficit, gov bond rate and private bank incomes at the same time. The latter two implicit targets are very political and non-centralbanker-like.
Claudio Borio, to whose paper I refer to in the column, also notes that giving central banks too much responsibility “risks undermining their credibility and public support in the longer run”. This was a point emphasized by Murat Ucer at a Koc University Economic Research Forum / TUSIAD conference last month. BTW, I would strongly recommend you to go through all of the presentation although the relevant points are in the outline and conclusion- you will also learn, if you don’t know already, how your friendly neighborhood economist thinks about these issues, as I and Murat think similarly about Turkish monetary policy.
And speaking of Claudio Borio, he, along with his BIS colleague (at the time) Bill White, were the first to predict the dangers of the global liquidity glut in a 2003 paper, so he is not just your average economist:)
Anyway, it seems I have once again acted very naively by putting the blame on the government for giving the Central Bank more duties than it can muster. The first two comments to the column illustrate why. Here’s the first, from long-time reader and commenter babadog, who is sort of pro-government:
Far from being like a deer in headlights,the government have been too influential in my opinion with the course taken by the central bank.Erdogan wants to avoid a slow down or recession at all costs and certainly not b4 the next municipal elections.
And here’s the second, from Boncuk, who has started commenting to my columns more recently and usually sounds anti-government:
How independent is the central bank of the government(compared to what it should be) to function properly? I think it has become a political tool implementing specific fiscal and monetary policies of the government?
So you have an AKP critic and supporter, both saying that the Central Bank is not independent and that the recent “extra duties” were assigned to it by the government. Joking aside, quite a few analysts will tell you they feel that way in private conversations, but few will be bold enough to declare it publicly. And I wouldn’t blame them, especially after Nomura’s recent fallout with the Central Bank, or at least with Governor Basci.
Finally, the Central Bank started intermediating in the FX depo market today, as it had announced last Friday. The idea is to create more FX liquidity by eliminating counter-party risk, but I doubt it would lead to a strong lira appreciation just by itself.
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