Is It Possible to Make Money with the Policy Rate Set by the Central Bank?

For example, let's say I am a foreign investor. I want to come and invest in Turkey.

What are the conditions I will look for?

I'm not talking about the law or this or that, I'm asking what I look for in monetary policy.

For example, if I bring my foreign currency and deposit it in a Turkish bank in foreign currency, can I get more income than the interest I can get in other countries?

The annual interest rate on foreign currency deposits is 0.60%. 

If I bring a million dollars and deposit it in a Turkish bank, the money I will get after a year is barely 6 thousand dollars. And that's without deducting taxes and fees!

If I were an investor, is it worth bringing money here and taking this risk? 

Even the interest rates in the US are higher. 

Moreover, you won't be able to touch the money you invested for a year!

It doesn't make any sense!

***

Okay, let's see what happens if I convert my foreign currency into Turkish currency and deposit it in a time deposit account in Turkish currency?

At today's exchange rates, one million dollars is 30 million 980 thousand liras.

The interest rate on Turkish lira for a one-year term is 32%.

What would the dollar exchange rate be after one year?

What was the central bank's inflation forecast if it would increase at the rate of inflation? 

According to the February 2024 market participants survey, the 12-month CPI expectation was 37.78%. 

Is this value real? I think not!

Let's accept this forecast as true anyway.

In this case, we can predict that the dollar exchange rate, which is 30.98 today, will be 42.68 a year later.

30 million 980 thousand liras will be 40 million 893 thousand 600 liras after one year with 32% interest.

If I convert this 40-odd million Turkish lira into dollars at the estimated exchange rate one year from now, my money, which is 1 million dollars today, will be 958 thousand dollars!

I will enter the Turkish market and bring in foreign currency to make money, and one year later, instead of making money, I will lose money! 

Is this possible?

Why should I bring money and put it to maturity in Turkey?

What do I want to happen under normal conditions?

I would like Turkish banks to give me more interest! 

So that my dollars, which I convert into Turkish liras, will be worth more Turkish liras in Turkish currency after one year, and I will make money by getting more dollars when I convert it into dollars after one year.

What is the standard for this? That the interest rate is higher than the rate of inflation!

And is this the case today?

No, the link between inflation and the interest rates given by banks is broken. 

As an investor, bringing foreign currency to Turkey and depositing it in a bank does not yield sufficient returns either in foreign currency or in Turkish lira. 

On the contrary, it even carries the risk of incurring losses.

Who would bring their money and invest it in Turkey under these conditions?

***

So what can we do as a state?

For example, can we prevent the exchange rate from increasing at the rate of inflation?

I don't know, let's keep the dollar exchange rate at 42.68 a year later, but let's keep the dollar exchange rate at, say, 39 with some backdoor operations. 

Would this change anything for foreign investors?

With an exchange rate of 38.95%, if I convert my 40-odd million Turkish currency deposits back to dollars with 32% interest after one year, I can get a return of 50 thousand dollars at most. 

This means a 5% return in dollar terms. 

Even the FED's interest rate is 5.4%. 

Why should I take the risk? It seems much safer to put my money in a bank in the US and the income is much higher!

The bank I have been working with for years has written that it can give me a slightly higher special interest rate on the Turkish lira.

However, if you have noticed, when I was doing the calculation, I did not take into account the transfer fees, insurance costs, then the difference between the purchase and sale of foreign currency in the conversion of foreign currency into Turkish lira, then the tax, withholding tax and other such expenses. 

If you take into account the risk share, even the interest rate that my bank gives me specially will not cover my losses.

***

But look, if I could get 10% return in dollar terms in Turkey, maybe I would think about it.

What level should the exchange rate be kept at after one year so that I can get a 10% return in dollars? 

The dollar exchange rate should be 37 liras! If I convert my deposits to dollars at an exchange rate of 37.17, I can earn a 10% return in dollar terms.

Can the dollar exchange rate be kept at this level after one year?

If you vaporize billions of dollars from the state coffers, sure, why not, but it is very difficult!

The aim is for foreign investors to bring in foreign currency, to bring in hot money. We will keep the exchange rate!

Let the foreigner bring in foreign currency and invest in the stock market, artificially increase the stocks, then slap the money and get out of the market. 

In the meantime, you buy the oil and natural gas you need with the foreign currency he brings in to trade in our stock exchange, and use the money left over to carry out backdoor operations to keep the dollar exchange rate at a certain level. 

Let the foreign investors, or maybe I should say mustachioed foreign investors, get out of the market by multiplying the foreign currency they brought in while they have the opportunity to benefit from these operations!

The reason why there was no interest rate hike at the central bank meeting this time may be a signal of a return to the old nas policies, but the reason why the statement said not to expect an increase in exchange rates is the message given to this foreigner. You bring the foreign currency, we will keep the exchange rate, we guarantee that you will make money.

We want the Turkish lira to be valuable, says the central bank. 

What does this mean? It means that we prefer the increase in exchange rates to stay below inflation, we guarantee it!

It means to foreign investors, don't worry, I will keep exchange rates at a certain level and make sure you make money!

On the one hand, interest rates are given below the real inflation rate, and on the other hand, exchange rates are prevented from increasing in the normal course so that investors can bring in foreign currency.

The result is a very expensive life for Turkish citizens in Turkey with rising inflation! 

Those with low incomes are already used to waiting in bread queues, while those with relatively normal incomes have to live in the most expensive country in the world.

I have nothing to say to those who are very rich, they already live at the same standard of living regardless of the conditions.

What happens to the poor and the middle-income generation, which is no longer there.

***

Do you know how much it costs to fill up this elephant!

I think my uncle is angry with the people in the election van, but don't worry, he will still vote for those in power.

Our pensioners wait for hours in line for cheap bread, but they still vote for the government. 

Pensioners, come on, you are good again, look at the increase in holiday bonuses!

Look, we flew our national combat aircraft for good. We will fly the economy too, don't you worry! We know what we are doing.

(By the way, we are proud that our national fighter jet KA-AN has finally made its first test flight. I wish we could have taken steps in this regard much earlier. Of course, it will take many more years for our own national aircraft to join the Air Force inventory. Let's say Mashallah, but don't let the evil eye touch it)

***

I don't know whether the economy will take off or not with this mindset, but this is not the way to go, we will lose more foreign currency to the hot money jackals in the world while trying to hold the exchange rate. We will be hit and hit and hit. 

Anyway, I don't know whether they are going to tie a link or write a bitter prescription after the elections, but it is certain that they are trying to look cute until the elections.

But I think if they try to go back to heterodox monetary policies, they won't be able to save us this time by looking at the light in my eyes.

You say, "I'm in bed, I'll open my eyes in six months, everything will be beautiful," and then you lose the kidney they stole from you on the operating table. 

I am telling you this.

Love and respect to everyone from Moscow.