Policy rate is 25%, how come?

I already wrote yesterday that there is a paradoxical situation in the market.

Nas brother, interest is haram!

Are you disobeying Allah's commandments? You'll get hit, I swear!

But the economy! Our economy has gone downhill! We need to raise interest rates!

Fine, interest is haram! You're going the wrong way! You'll get hit!

***

Somehow, Mr President seems to be convinced of the interest rate hike. 

The central bank raised the policy rate to 25%. And it did this without listening to any nas.

Was it right?

Of course, as a step, this is the right step.

The rule of this business is interest income above inflation. It should be at least one or two points higher.

If you want low interest rates, you have to fight inflation! But zero interest is not possible in today's world.

That is a utopian view of the world in the Islamic world. 

Work, take enough of your earnings and distribute the rest! 

If someone asks for a loan, take it, brother, and tell them to lend it to you later! Don't ask for interest!

"Because of the injustice of the Jews, and because they hindered many people from the way of Allah, We have forbidden them some of the clean and pleasant foods which were lawful for them before."

"And because they took interest, though it was forbidden to them, and they devoured the wealth of the people unjustly. We have prepared for those among them who disbelieve a painful torment."

Nisa 160 and 161

According to Islam, you should share what you earn from your labour with those who do not work as hard as you do, those who cannot work, those who work but cannot earn, or those who are in real need!

But do those who are Muslim at least in their hearts do this?

No! They do not!

Those who know about these matters have thought of fifty ways of cheating, they call it sukuk, they call it other methods, and they find a way to make money from money somehow.

Others call it charity, zakat, and keep the rest of what they earn for themselves, except for a small amount they give from their religious earnings. 

The worldly goods will remain in the world, brother, what is this greed for money?

So even the Islamic mentality does not work in today's world!

***

Well, let's go back to the central bank, was the policy rate raised above the inflation rate?

Of course, it has not been increased that much yet, the increase is not as much as the inflation rate, in other words, it is not enough yet. 

According to ENAG, inflation for the period January 2023 - July 2023 is already 69.21%. The annual inflation rate is 122.88%.

Even according to TURKSTAT data, the annual inflation for July 2023 was 47.83%, so according to the rule that the policy rate should normally be above the inflation rate, the policy rate should at least go up to 48% so that the market works as it should.

Yes, I understand that in this case, interest rates will trigger inflation, but the methods of fighting inflation are very different.

So, for the time being, I can say that there is still a long way to go to increase the interest rate.

***

Don't you understand? Interest is haram!

What was that song, Levent Yuksel was singing, wasn't it? 

/ Get over it, 

/ Oh, my God, get over it,

/ In a pen,

/ I know I did it.

***

As a first reaction to this interest rate, some capital owners may prefer to keep their money in Turkish Lira and keep it in overnight repo. 

Of course, this is valid for those who need money circulation in the short term and for capital owners who use Turkish Lira in circulation. 

For those who want to keep their money somewhere for investment purposes, why should they risk their money under inflation, at least below the foreign exchange yield, without the assurance of keeping the money in foreign currency?

KKM accounts have a return at least at the level of the foreign currency appreciation of the money. This means a guarantee at least at the foreign currency level. At least the value of your money does not fall. Your money loss is minimal.

***

On 2 January 2023, you could exchange 1 dollar in your hand at 18.7029 with the central bank rates.

On 24 August 2023, you could exchange the same 1 dollar to the central bank for 27.0937 liras.

Between the two dates, your return in dollar terms was 8 lira 39 kurus. 

If we rate it 44.86 

Moreover, this rate belongs to an 8-month period, considering that there will be an increase at the same rate, it can be thought that the annual return will be 67.29%.

In other words, if they say we give you a 25% return in a year, if they say come and invest your money with me, I would say come on.  If I can't do anything, I will at least keep it in foreign currency. 

As I said, according to ENAG, inflation rates have already skyrocketed.

Even the foreign exchange return is below inflation.

***

So is this development positive, at least as a step? 

Yes, it is positive!

Is it enough? 

Unfortunately, no, it is not enough!

If investments in KKM accounts will be made more difficult, then the money will look for another place.

I already wrote about the places it will go the other day, let me repeat. 

Either foreign exchange, stock exchange, crypto or gold. It is more risky for risk lovers, but there are other methods where you can earn more money if you are lucky.  If you want, invest all your money in the national lottery, you can become a billionaire if you are lucky.

Maybe you can buy a property or a car with your money.

But if you say you will keep it in Turkish Lira time deposit accounts, don't do it, you will lose it! Your savings will melt away.

Let's see what the effects of this development will be in the markets. 

I think they are coming round a bit in any case. 

At least no one is saying that interest is the cause and inflation is the result. No one says "I am an economist".

Even this is a very positive development.

My love and respect to everyone from Moscow.