New CBRT chairman: The proof of the pudding is in the eating

TURKEY - In Brief 11 Apr 2016 by Atilla Yesilada

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Dr Murat Ucer covered the basics of the appointment of Mr. Cetinkaya as the new CBRT head yesterday, where he also voiced my disappointments that Turkey is unlikely to witness prudent and independent monetary policy in the near future. In this brief, I want to add more political analysis and commentary from the Cosmic Strategist regarding short-term market implications. First, this is clearly a small but significant victory for the Davutoglu camp against Erdogan’s advisors who yearned for a bolder candidate who would take an axe to interest rates. Hours before the announcement of the selection, Mr. Yigit Bulut signaled that Erdogan was giving up the fight for a radical approach to monetary policy by admitting that a “25-50 basis point cut in the O/N lending rate in the next MPC meeting would be appropriate.” He then began pressuring the state banks to unilaterally reduce loan rates to stimulate growth, which suggests to me that somehow somebody persuaded Mr. Erdogan and his entourage that sudden course changes in monetary policy is simply not feasible. We are asked whether Mr. Cetinkaya is closer to Erdogan or Davutoglu, which is missing the point. Since his name had been floated earlier by the Davutoglu camp, he is probably a person Simsek and Babacan-- who still has an important say in economic affairs as advisor to Davutoglu-- are comfortable with. Nevertheless, Erdogan’s endless tirades against High Interest Rate Lobby will continue, introducing sporadic shocks to markets and Mr. Cetinkaya’s ability to withstand this pressure is the biggest unknown. Contrary to most readers I meet, I always thought Basci did a very poor job of dealing with this pressure hence my ba...