Economist praises interest rate hike in Turkey, but says “I’m not sure if rest will come”

Internationally acclaimed economist Daron Acemoglu has said that a hawkish interest rate hike by Central Bank may be “the first indication of determination to fight inflation,” but would be insufficient if not accompanied by some policy changes.
Influential economist Daron Acemoglu on Sunday said that the latest interest rate hike by Turkey’s Central Bank “could be the first indication that the Central Bank is actually determined to start fighting inflation.”
“However,” he added, “We are just at the beginning of a path that leads to good policies.”
He tweeted:


“The economy will not be restored simply by raising the interest rate. I’ve been advocating a policy change that would require four actions to be taken. The first one is bringing the real interest rate above zero to start taking inflation under control. This is crucial for fighting inflation. We are at the beginning of this. And I’m still not sure where state banks will stand.”

The second one is starting an institutional reform process at once. This is equally important and it should begin by enhancing freedom of expression and democratic rights. The institutional reforms that will have a direct impact on the economy are also of great importance. The third one is bringing in funds from abroad. These funds should be used to restore the balance sheets of companies and banks and to finance large expenses caused by the earthquake.”

Adding that he was not sure if the government’s economy team led by the Treasury and Finance Minister Mehmet Simsek would use foreign funds appropriately, Acemoglu said:

Mehmet Simsek was in control of ample funds during his previous term in office and these funds could not be used properly. That was a period when Turkey’s productivity was at its lowest. Can they now be expected to suddenly start making the right decisions?”

“The fourth one is stopping the increase in poverty. They should both ramp up investments and enhance the social security network while funds are brought in from abroad and institutional reforms are implemented. I’m not sure if the government will pursue the appropriate policies to that end.”

“To sum it up, this is a step in the right direction, but it is not yet clear if the rest will follow. I believe that Turkey and the people of Turkey are ahead of difficult times.”

Gercek News