Midnight Express

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Of course I am not here to talk about the Academy Award winning movie although it has some detail that many Turks find ugly. Our monetary policy markets decided to hold an extraordinary meeting yesterday and it has seemed to have the desired effect so far. There has not been no intervention by selling already not sufficient foreign exchange reserves. Like many others, I thought that it was the political pressure by government on Turkish Central Bank not to raise the rates, although it should have done already, and no wonder because of the interest rates lobby, which is a group of people is believed to exist, to squeeze the country financially, and to prevent the government from building bridges, airports, canals, roads and to have secret connections with Gezi Park protesters, the opposition party, some Turkish businessmen, Israel, the US, the UK, London-based financial institutions, Vatican, Templars, and so on…

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The extraordinary meeting will be start this evening, and we will be informed about the decision at the midnight, and that is why I am calling the meeting “Midnight Express”. Turkish Central Bank only decided to hold this kind of meeting when it about raise the rates shockingly. And yesterday, just after announcement, the expectations for the surprising hike led Turkish Lira soar and Lira has rallied over 1200 bps since then.

Here is some notes from the economists’ reports. It is expected that Turkey needs to raise overnight rates by 300 basis points for market effect, however, it could be even higher, because it is strongly doubtful for Turkish Central Bank to regain the investor confidence. Beside of “a meaningful hike“, a more simplified monetary policy must be adopted which I find crucially important in central banking unlike Turkey’s policy makers. We have a marginal funding rate of 7.75% while policy rate is at 4.5&, but somehow Central Bank decided to engineer interbank rates at 9%.

and here is some notes from an earlier post:

Simply, the CBT is running the strangest monetary policy in history but luckily it is trying to gain some understandability now. With the recent trend line on both inflation and FX rates, we will see much more normalization, just because the CBT has no room for avant-garde policy implications.

Finally, I remain 100% confident that CBT most lately will hike the rates at the mid of 2014.

Frankly speaking, another strange action to be taken by CBT is what I am afraid most of. Today, on a meeting with economists and journalists, Erdem Basci, the Governor talked about a possibility of serious slowing in economy despite he articulates a hike in interest rates. Maybe, we will only see a hike in top line of the interest rate corridor towards 12% but not policy rate, that would definitely not simplify the monetary policy.

Lira is traded at 2.26, and 2-year bond rates are over 11% at the moment. See you at midnight.

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