WHO IS THE REAL BOSS?
While the dollar-interest rate-Central Bank triangle continues to confuse the public, experts claim that the real boss is the market itself during these exceptional times. Prof. Dr. Hakan Yetkiner, Vice Dean of Izmir University of Economics Department of Business Administration and Lecturer at Department of Economics, stated that the Central Bank needed to meet the expectations and he said, “All the rational players in the market are aware of the fact that outflow of foreign currency would be experienced as long as the interest rates stay the same and the exchange rate would increase. The Central Bank needs to stop swimming against the tide and adjust the interest rates upwards parallel to USA.”
Prof. Dr. Yetkiner commented on Erdem Başçı’s, Governor of Central Bank, following statement, “If the capital flow starts again, the dollar might be 1.80TL again. If this does not happen, then it may stay around the mid-level which is 1.92TL. We see this depreciation in exchange rate as normal. But the private sector need not be alarmed about these developments. The market can smooth things out within itself,” saying that the market itself was the real boss of the market during exceptional times.
Prof. Dr. Yetkiner stated that they were experiencing a similar situation these days. He said, “Normally, central bank is the boss of money and finance market. The Central Bank can easily determine the interest and exchange rates by using its tools. However, during the usual times, the market itself is the real boss and the Central Bank cannot compete with the market no matter what. We are exactly experiencing this situation these days.”
"Days of abundant liquidity in USA is over”
Prof. Dr. Yetkiner mentioned that the U.S. Central Bank smothered the USA and world market with liquidity since 2008 in order to overcome the major financial crisis that the USA is experiencing, and he said international companies’ deposit boxes were overflowing with digital money. He said increasing money supply caused inflation after a period of time and it became apparent that days of abundant liquidity in USA was over. Prof. Dr. Yetkiner stated the following:
“As a result of decrease in liquidity, the interest rates in USA will increase, thus some of the USA dollars floating around the world will go back to USA again. When the US dollar abandons other countries and goes back to its original country, it gains value. That is to say, we are going to experience the exact opposite of what’s being experienced since 2008. In this case, there is only one thing the central banks of other countries can do: to increase the local interest rates, in other words, opportunity cost of money in local economy, parallel to those of USA’s. As long as this is not done, these countries will experience an increase in US dollars and their money will lose value.”
“Exchange rate is moving upwards”
Prof. Dr. Yetkiner indicated that Turkish Central Bank, despite all these expectations, was swimming against the tide. He said that the officials would not increase the interest rates and they would be able to control the exchange rates with the tactical tools they have. Prof. Dr. Yetkiner said, “Intermittent outflow of foreign currency state the exchange rates for the end of the year or for next year out loud. It is not easy to say this is expected of Central Bank. To remove the expectation created by the US Central Bank by Turkish Central Bank is not an easy task. Therefore, as the Central Bank announces that it will not increase the interest rates, the exchange rate moves upward. Because all the rational players in the market are aware of the fact that outflow of foreign currency would be experienced as long as the interest rates stay the same and the exchange rate would increase. The Central Bank needs to stop swimming against the tide and adjust the interests upwards parallel to USA. Otherwise, the market will do this by itself. As long as there is an outflow of foreign currency, the liquidity in the market will decrease, and interest rates would increase. Meanwhile, the Central Bank reserves get affected.”
