The Kapali Carsi

Basta with Turkish Monetary Policy: Doing Business in Turkey

I just realized that my last half a dozen or so Hurriyet Daily News columns and posts here have been on Turkish monetary policy, either directly or indirectly. In my defense, there was a lot of demand for that sort of analysis, as investors wanted to know how the Central Bank would respond to excessive capital flows, Governor Erdem Basci surprised everyone by stating that the Bank would now target the real exchange rate and there was a lot of uncertainty on whether the Bank would cut the floor of the corridor and/or the one-week repo rate.

I turned out to be right with my guess that the Bank would not touch the floor or the one-week repo rate yet. However, the Bank also maintained its easing bias by noting in the one-pager accompanying the rate-decision that “if deemed necessary for financial stability, a measured cut may be considered in the policy rate and the overnight borrowing rate in the forthcoming period”. What I understand from this statement is that, should capital flows turn out to be strong until the next rate meeting and appreciation pressures on the lira resume as a result, the Bank will cut both the one-week repo rate and the floor of the corridor (the borrowing rate). Anyway, since the Central Bank managed to keep expectations of a cut in the floor and repo intact with this statement, there was limited impact on the lira and government bonds: The benchmark finished the day at 6.24 percent after hitting an all-time low of 6.19 percent before the rate announcement.

Anyway, the interested reader is more than welcome to read what Citi or BNP Paribas have to say on the rate decision, but I am saying basta with Turkish monetary policy for now and will devote the rest of this post to the longer-term issue of ease of doing business in Turkey.

My favorite Turkish construct is the “me/ma” suffix, which could mean “ing” or “don’t.” So “iş yapma” would be the Turkish for the World Bank’s (WB) annual “Doing Business” report. It could also translate as “don’t do business.”

Here’s in the intro. to my Hurriyet Daily News (HDN) column on Turkey’s place in the latest World Bank Doing Business rankings. While you can read the whole thing at the HDN website, I argue that Turkey’s dismal standing in the rankings 71th out of 185 countries, same as last year (or down three places, depending on whether you want to keep the country sample the same) reflects one of the major dilemmas of Turkish economic policymaking: The macroeconomic reforms that have brought the country economic stability and made it the darling of international investors in the last few years have unfortunately not been followed by structural/micro ones.

Anyway, you can read the World Bank’s own assessment, and my beloved HDN also had an article on the topic.  After you do those, the second Turkish meaning of “doing business” would be more appropriate if the Doing Business Report is any guide…

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