There is a consensus among most economists on the future of the global crisis: we left the worst part behind. The disagreement is about the pace of the recovery to be observed. Since the worst part is most probably left behind, it is now time to discuss the 'period before the worst part'. Let us begin with monetary policy.

There are two reasons behind the delay in introducing measures to tackle the crisis. First, interest rate and exchange rate movements were not as crazy as they were in 1994 or 2001 crises. Very interestingly, this favorable situation led to a huge unfavorable outcome. The main factor behind the "We will be fine and safe" idea is this. However, the inertia was driven also by a second factor. And it is that the Central Bank stepped in without wasting time simultaneously with the intensification of the global crisis and turned efforts toward policies cool down the market. The Central Bank announced that they will not allow possible liquidity squeezes in terms of both TL and FX to prevent the panic movements among banks. The Bank also started to cut interest rates starting from 20 November 2008.

Based on the statements made by the authorities and also took place in the media, this can be said: it was believed that the liquidity measures and the interest rate cuts together would eliminate the risk of slow growth in 2009. Of course a contraction in growth rate at the extent observed in Turkey would have not necessarily been expected; however, as also mentioned in this column, some factors were known in advance: in the sharp ambiguity of 2008, level of foreign resources we have access to would be highly constrained, foreign demand would fall, banks would be unwilling to extend credits to the corporate sector and households, and the confidence in the economy would decrease. And as a result of these, private sector consumption and investment expenditures would scale down.

Yes, beck then the intensity of these movements could not be estimated; at least I could not. However, it was apparent since the mid-2008 that the mentioned negative factors would step in sooner or later. I even remember questioning frequently how banks can increase the volume of credits they extend given the harsh conditions.

That monetary policy does not have much to do become apparent even back then when the issues were evaluated with this lens. Liquidity measures were necessary; panic behaviors could not be prevented otherwise. However, these measures should not have been expected to make banks extend credit to the real sector. The reason was that the risk perception of the banking sector was going up and the elimination of this depended on the course of the global crisis on the one hand and rapid implementation of a coherent economic measure package on the other hand. And such economic program was not yet implemented.

On the other hand, the main reason behind the fall in export volume was the deterioration in level of global income and thus the foreign demand. Tightening of foreign credit channel was also driven by external conditions. Monetary policy could not remedy these problems in the short term.

However, it was argued that the interest rate cuts by the central bank were highly necessary to push up the growth rate. It was thought that the rate cuts were made to serve to this end. There are of course details of rate cuts that might be discussed; however the essence of the issue does not change: There is nothing wrong with the rate cuts.

But the question is: Would the interest rate cuts be that steep if the price of crude oil, which reached 140 dollars per barrel in mid-2008, did not fall to 45 dollars in a couple of months and other energy prices did not decrease? This takes us to a dilemma which central banks of emerging market economies encounter in crisis periods. We will address it later.

This commentary was published in Radikal daily on 22.06.2009