The Central Bank And The Jungle Of Ambiguities

So many uncertainties prevail now, marring a clear view of the future for the world and for us. We can't even see the tip of our nose and such vagueness at the highest rank is no good for nations.
Yet our central bank is now seriously mulling over the idea of easing its monetary policy and is poised to slash the key interest rate in an extraordinary meeting on Feb. 4. The bank's chief, Erdem Başçı, said on Tuesday that the Monetary Policy Committee (PPK) will convene a day after the Turkish Statistics Institute (TurkStat) discloses the inflation rates for January. Markets reacted swiftly, carrying the currency rate TRY/USD to over 2.41, breaking the all-time record level.
There are now a lot of ambiguities in Turkey and elsewhere. Some of them carry the potential to topple the hard-won achievements of recovery after the ailments of a years-long crisis, cripple the effectiveness of the anti-deflationary measures and aggravate the mood in already jittery markets. The ground is extremely sloppy and slippery, and it may be a wiser decision to remain leery and watch the troubles pass instead of moving ahead.
The bank is moving, though. More alarmingly, it is being pushed by the government to adopt an Anglo-Saxon approach to carrying out monetary policy and prioritizing growth, rather than the inflation-focused Continental European model. As chair of the Federal Reserve (Fed), Janet Yellen, likes to reiterate, data should lead the banks. Data and objective theories supported by numbers… Our central bank, however, is standing under the shadows cast by politicians. The government, unfortunately, is exerting blatant pressure on the Central Bank as the pitch of signals indicating a slowing economy have heightened and at the same time act as sirens warning of danger for the government ahead of the upcoming general elections.
The government is in no position to determine that an extremely weak currency may inflict worse damage on the economy than higher interest rates. It might as well turn a blind-eye to the possibility that a reduction in interest rates doesn't always propel investments if the level of savings is not adequate and stability is not guaranteed.
But I will save speculating on the central bank's motive for making such a move for another discussion. I now want to question whether it makes sense for the Central Bank to jump the gun in a thickening fog of uncertainty.
The Fed may raise the interest rates this year or defer swinging into action until 2016. The Federal Open Market Committee (FOMC) sounded both dovish and hawkish after the January meeting. The US is afraid of making the same mistake it did in 1938 when the economy fell back into a depression due to an early rate hike. But it is also concerned about the possible problems late action may cause. The deferral of an interest rate increase may force sharper hikes and less effective results.
Oil prices have been on a steep decline and no one is definite about when they will bounce back or what the average price may be for the year. For how much longer will Saudi Arabia, which has more than $700 billion in its reserves, sustain its policy of surplus oil production? Will Russia's woes worsen further amid cheap oil? What do the current prices promise for net oil exporters? Iraq is losing revenues and its struggle against the Islamic State of Iraq and the Levant (ISIL) threat is weakening, which means an escalation of threats for Turkey. Those are only a few of the questions that the plummeting oil prices have stirred recently. For Turkey, the fall in oil prices is a boon in terms of its current account deficit (CAD), but its major trading partners are in worse condition.
The eurozone announced an expansion of its loose monetary policy through a bond-buying spree that will last until at least September 2016. This is a double-edged sword for Turkey. Will it be enough to lift the eurozone economies? Will deflation be defeated? Will recovery in the eurozone demand for our goods be significant enough to offset the losses incurred by the weaker euro on our exports?
The Greek elections saw the leftist Syriza party victorious and a Greek exit from the euro is being voiced louder than ever before. The new Greek government may not reconcile with the Troika of the EU, the European Central Bank (ECB) and the IMF over the amelioration of the conditions Greece was forced to abide by in return for European loans. If an agreement is reached, this may boost the popularity of radical parties in other debt-laden economies of Europe.
There are many more sources of ambiguities that prevent drawing a neat picture of the future; the light is getting dimmer and the road is getting bumpier. The central bank must think again about whether it is really necessary to move on this path.

İBRAHİM TÜRKMEN (Cihan/Today's Zaman)