MHP Chairman Devlet Bahceli called for the independence of the Central Bank of the Republic of Turkey to be opened for discussion, saying, “It is politics that takes account, and politics should make the decision.”
Speaking at the group meeting of his party, Bahçeli said that the government’s economic policy is correct. “Turkey should get rid of the interest rate hump,” Bahçeli said.
Bahçeli used the following words about the economy:
Those who attack Turkey through the economy; moreover, it is the common responsibility of everyone whose heart beats with the love of homeland and nation, not to give an opportunity to those who try to imprison our people in the spiral of interest, exchange rate and inflation.
Inflation is a macroeconomic measure that shows the cost of living of the society determined by the demand and supply conditions in the goods market.
Global inflation is currently on the rise.
This beast basically feeds on two sources: demand-side inflation that occurs when the supply of goods and services cannot respond to the increase in aggregate demand; the other is supply-side inflation brought about by the increase in production costs.
The development of policies to combat inflation and their success are closely related to the correct determination of the source of inflation.
The prevailing view on ensuring price stability highlights monetary policy and defines central banks as the institution responsible for price stability.
The strategy followed in price stability policies since the early 1990s is inflation targeting.
In this framework, the solution proposal for the fight against inflation is quite clear: It is to increase and decrease the short-term interest rate as much as the increase or decrease in the inflation rate, thus keeping the real interest rate constant.
Inflation targeting, in essence, approaches the fight against inflation from the demand side and predicts that increases in interest rates will reduce aggregate demand, thereby slowing the rate of price increase.
However, since inflation occurs in the goods market, it is best to define high inflation as a problem caused by goods market disruptions.
The disruptions observed in the goods market are also the result of a country’s production structure.
The main problem underlying the production structure of many emerging market economies such as Turkey; It is import dependency in machinery, equipment and energy, along with raw materials and inputs used in production.
When the foreign trade deficit of the goods and services sectors is added to this, a production structure sensitive to exchange rate changes emerges.
Here is the problem we are facing.
In the flexible exchange rate system, the value of the exchange rate is determined by market conditions.
Theoretically, high domestic inflation compared to international markets leads to the depreciation of the national currency in the long run; It is naturally expected that high domestic interest rates will lead to an appreciation of the national currency in the short term.
A healthy analysis of the question of how the exchange rate, which is affected by the inflation in the long run and the interest rate channel in the short run, moves is an important need.
The experience of Turkey in the commodity, money and exchange rate markets has shown us that the raising effect of inflation is much more dominant than the depressing effect of interest in determining the exchange rate.
“Turkey has to make a decision”
For this reason, the high inflation-interest-currency dilemma always appears before us.
I would like to emphasize that Turkey’s production and foreign trade structure requires approaching the fight against inflation not only from the demand side, but also from the supply side.
Implementing a high interest policy in a situation where demand-side positive shocks are accompanied by negative supply-side shocks at the source of inflation, in the words of the President of the European Central Bank, “while tighter monetary policy only intensifies the contractionary effect on the economy”; According to us, it is similar to “going with fuel to the fire”.
As high interest rates increase financing costs, it not only prevents the recovery in the economy on the supply side; It also restricts production capacity by delaying investment decisions.
This means unemployment, poverty and cost of living.
Turkey is faced with making a decision and putting forth a will to implement it.
Either we will continue to react to the increase in inflation by raising interest rates, and we will accept the cycle within the inflation-interest-rate-rate spiral; or we will gradually abandon the high interest rate policy, which distorts the activities and expectations of all economic units, and move to a policy understanding that redefines the fight against inflation and is based on the production channel.
In our opinion, there is no other alternative.
You are well aware that both policies have risks and costs associated with them.
The cost of the first has already been paid, unfortunately it continues to be paid.
The second requires taking structural steps.
Gradually abandoning the high interest rate policy, which is the second option, indicates, first of all, that import dependency in production and foreign trade is on the agenda as a structural problem and the fierce struggle against it.
Taking structural steps to reduce raw material-input, machinery-equipment dependency in the first place will be the cornerstone of breaking the inflationary pressure from the exchange rate.
The fight against inflation will be accomplished with a policy that includes a supply-side approach, and if Turkey is to pay a price, it will take the risk to change and improve its production structure.
There is no other way for our economic security.
“The independence of the Central Bank should be opened to discussion”
However, the primary issue that needs to be resolved not only for the fight against inflation, but for the entire economy is the elimination of uncertainty in policy implementation.
It is proven by our experience that the policy, which is based on monetary policy and the central bank, the role of public finances is kept in the background, and the policy that links the fight against inflation only with interest is insufficient to produce a solution.
It is an undeniable fact that we, as a country, need a public finance approach that detects and solves the obstacles to effective use of resources, as well as the implementation of a stable and stable monetary policy.
Turkey should get rid of the interest hump.
Interest causes great damage to the production system in the long run.
Our country is currently one of the top ten countries in the world in terms of high interest rates, and is at the top of Europe.
Interest is stealing from our future.
In our opinion, the economic policy followed by the government is correct, to create polemics over it, to say that we are finished, exhausted, burned, ruined is doomsaying, maliciousness.
According to the result reached with the 1980-2020 period data for the Turkish economy, a long-term relationship was found between the interest rate and inflation.
At this stage, it is a necessity of both democracy and national will to bring the independence of the Central Bank into discussion within the scope of the new management system.
It is clear that we cannot go any further with the tricks of the IMF and the interest lobby.
It is unacceptable distortion to have the mallet in the hands of others while the drum is on the neck of the government.
Autonomous and independent institutions cannot and should not be above the national will.
“There are no early elections”
Bahçeli added that there will be no early elections in his speech.
Bahçeli said, “I repeat, there is no early election, the election will be held in June 2023. Those who say elections, immediate elections, and elections are also supporters of the politics of defeat.” he said.