Turkish central bank repeating mistakes of 2018 currency crisis – columnist

Turkey’s central bank is repeating the same mistakes that it made in the lead up to a currency crisis in 2018, according to Alaatin Aktaş, a columnist for the Dünya newspaper.

The central bank raised its benchmark interest rate by 4.75 percent to 15 percent in a decision last week to help steady the lira and rein in inflation. However, monetary policymakers were already lending to banks at an average cost of 14.87 percent through other funding rates, meaning the rate hike amounted to just 0.13 percentage points, Aktaş said on Wednesday.

In June 2018, the central bank had raised its benchmark interest rate in a similar fashion, increasing it to 16.5 percent from 8 percent. Just like last week, the bank had increased borrowing costs to match the rate it was lending to banks at anyway, on that occasion through the late liquidity window rate of 16.5 percent.

Now the central bank seems to think that it can obtain a different result with the same policy to arrest a slump in the lira, Aktaş said. But the events following the rate hike of June 1, 2018 suggest a different outcome, he said. The bank was forced into another hike a week later, then one more in September of that year, belatedly raising borrowing costs to 24 percent after the lira tumbled to successive record lows.

“Is it possible that the central bank doesn’t know what happened two years ago? If it does, then why is it doing the same thing and expecting a different result? If anyone can understand that, please explain it to us!” Aktaş said.