The claim that the interest rate decisions are made by a single official probably stems from the fact that in the implicit inflation targeting period the decision was not made by the MPC.

You probably have seen in press. It is argued that 'until recently' the interest rate decisions of the CBT (Central Bank of Turkey) were made by a single official (clearly referring to the Governor of the CBT). Is this true? You might as where on earth did this question come from now. I have a personal motivation. I also worked at the CBT in the referred period and I was of belief that I had an important role in the interest rate decisions. If the mentioned decisions were made by a single official this implies that I worked at the Bank for five years with no use to anyone. This would not be nice. Did I do nothing but lay around throughout my duty at the CBT?

Instead of explaining how interest rate decisions are made on the basis of anecdotes, it would be wise to establish it upon a monetary policy framework. From January 2002 to December 2005, the CBT implemented implicit inflation targeting regime. This regime in essence was not different then the current one.

The Bank stated an account twice
First as per the new law the main objective of the CBT was to ensure price stability and it was free to use the monetary policy tools seen necessary to fulfill this objective. Second, inflation target was declared to the public at the beginning of the year. Third, overnight interest rate which is the main policy tool of the CBT was changed in line with the difference between the Bank's inflation estimates and the inflation target. Fourth, the Bank announced the justification for each policy rate decision to the public. Fifth, the Bank stated an account with a presentation two times a year before the Council of Ministers and the Parliament's Budgetary and Planning Commission. Sixth, communication policy was used commonly and if the fiscal policy, if rendered to be in contradiction with the inflation target, and the delays in the structural reforms were criticized before the public.

The cause of the formal differences between the current regime and the regime back than, and thus the reasons for the former regime's being more 'implicit' were: first, the Monetary Policy Council (MPC) was discussing the economic circumstances and the potential interest rate policy with an emphasis on the inflation but it was not the body making the final interest rate decisions for the majority of the mentioned period. Second, the meetings of the MPC were not announced to the public in advance. Third, back than the Quarterly Inflation Report that included prospective inflation estimates and the potential policy responses was not published. Instead, Quarterly Monetary Policy report that focused more on the 'current state' was being published.

The claim that interest rate decisions are made by a single official probably stems from the fact that in the implicit inflation targeting period the decision was not made by the MPC. But the decision was made as a result of long negotiations and discussions between the Governor, the vice governor (there were two at first and one in the following period), Director General and Vice Director General for Research and Monetary Policy, and Director General and Vice Director General for Monetary Markets also in line with the recommendations of the MPC. What is more, for the negotiations to take place, the relevant sub-units of the CBT prepared detailed reports and sent the report in advance both to the MPC and to the group making the final decision.

Therefore, yes, the interest rate decision was not made by the MPC. But the decision was made by a group composed of the heads of CBT relevant departments in tandem with the essence of the inflation targeting. I want to note that I had to write this commentary to give credit due to those who played role in the mentioned process one way or another.

This commentary was published in Radikal daily on 12.02.2011