When I discussed the Central Bank of Turkey's new policy mix back in December, I had noted that I found it confuzzling, as it contained many inherent inconsistencies, as I outlined in detail in a Roubini special...
As a recent FT piece notes, with Turkish assets having underperformed since then, with the exception bonds, which were bound to rally, the magic seems to have worked. But still, the CBT would know all these inconsistencies in their framework much better than me. So why did they go ahead anyway?
Maybe, they wanted to create some confusion on purpose:)[semi-winkish]. I had argued back in October that some uncertainty in monetary policy would be good in the current brave new world. But if that is indeed the purpose, I wonder if they have gone too far: I am not sure if talking so much about one of the country's biggest risk areas, the current account deficit, is beneficial. OK, you are signaling you care, but you are putting the CAD right on the investors' radar!
Speaking of the CBT and the current account deficit, I read that in a speech in Vienna yesterday, CBT Governor Durmus Yilmaz noted that the credit demand and accompanying surge in imports from the rate cut would could outweigh the benefits of a higher exchange rate on exports... I don't know if he really said that, but if he did, all I have left to add is: Good morning in Uskudar!
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