The way to slow down the economy is to increase interest rates. If you want the opposite, do the opposite in financial policy

Turkey’s economy is slowing down; its growth rate is dropping off. The distress you feel everywhere is most probably related to this. Ankara has wanted the Turkish economy to slow down. Lately, however, I cannot stop wondering whether this was what Ankara actually wanted. Yes, the economy has cooled down, but it has not yet shown a sign of a rally despite the Central Bank (CB) having recently lowered the effective interest rate. If you think about you, you might suspect that something is going wrong. What is the reason? And why do I think that in the current environment the CB has a lot to learn from Steve Jobs about putting things back on track?

The new unconventional monetary policy framework of the CB represents the milestone of the current period of economic slowdown. As far as I know, conventionally, you either increase interest rates or taxes to suppress domestic demand, or do both. In this recent case, however, Turkey was slow in launching measures to cool down the economy in the face of a series of elections and a referendum. Second, Turkey was convinced that measures should not be based on tax increases. Third, it was revealed that we cannot raise interest rates explicitly due to political reasons. Fourth, we raised interest rates effectively after a series of complex measures. The measures did not seem to work at first. Fifth, the credit growth rate started to ease only after the Banking Regulation and Supervision introduced additional measures to discourage bank loans. This is how I see it, more or less. The rest is empty talk.

From this perspective, this is what I see: using a complex set of measures and a constantly changing song of objectives, the CB has confused bankers. Under the influence of the political atmosphere, it has started to speak an unknown language. In the end, the bankers, constantly subjected to unconventional messages and confused by the statements of the central bankers who suddenly have started to speak an unknown language, naturally have started to avoid risk taking and lower the risks in their balance sheets. I would do this, too. I believe that the main driver of the economic slowdown was the risk appetite of the bankers who manage the balance sheets of their banks. A confused bank manager who avoids risks would not fully react to an effective decrease in interest rates, as in the current case. Why? Because life is simple. The complicated policy strategy of the CB is based on an equally complicated communication strategy. Life, however, always chooses the simple answer over the wrong one. All creatures prefer the easiest way possible. A complicated message set, on the other hand, is just confusion. You say one thing, I understand another thing, and some of the details are lost. That understanding what the CB means has become like solving a puzzle has led bankers to lose their risk appetite. They have started to react less vigorously. Thus, the dynamics that used to slow down the economy in turn now hinder the revival of the economy.

I remember writing about this months ago, and look where we are today. I think the Central Bank could take a lesson from Steve Jobs. The core reason for Apple’s glittering success is that even a three-year-old can use one of their state-of-art device without hesitation. What is Steve Jobs’ key message? Simplicity and the ease of use it brings. If you want to open an application, you just touch on the icon. You don’t need to do a somersault. If the font is too small to read, you pinch the screen to make it larger. To jump ahead when playing a game, you scroll your finger across the page.

The way to slow down the economy is to increase interest rates. If you want the opposite, do the opposite in fiscal policy. That’s all. If you do this, then everyone will understand what you are trying to do. Acrobatics is not a task for central bankers. So, where are we now? The unconventional policy framework of the CB, a source of uncertainty we intentionally implemented to cool down the economy, is getting in our way today. Good luck with that!

This commentary was published in Radikal daily on 18.09.2012