But why?

Monetary Policy Committee announced THE CENTRAL BANK’S a mind-boggling decision last week to drop the policy rate by 100 basis points. There are a lot we could say about this but let’s keep it brief:

1- CBRT never put an emphasis on “core inflation” until the last three weeks but did a surprise move by changing its benchmark and its communication strategy. Why?

2- The markets, aware of the change in the discourse, never projected a change in the rates as per a poll. And then, against expectations, we saw a drop. Why?

3- If there was a downward trend in inflation, one could argue that a move to drop the rates could be legitimized. However, there is no such downward trend. The rates were lowered even though inflation was rising. Why?

4- There could have been a relatively minor drop in the rates, like 25-50 basis points, but the decision sent a stronger message. Why?

5- The decision clearly contradicts previous Monetory Policy Committee decisions and the messages from the governor. Why?

6- Almost all countries, even those with fewer risks are turning back to firming up their monetary policies, but we lowered the rates. Why?

•verarching all of these questions is another that needs to be answered: What happened in the last three to four months in our economy that paved the way for a rate drop? This week will be a bad one in terms of data.

Tuesday morning, service trade data for 2020 will be released. The data won’t have a significant effect on the markets even though there will be a sizeable drop in revenues and expenses due to C•VID -19.

•n Wednesday morning, the economic confidence index for August will be released. After seeing a 1.5-point increase in consumer confidence, sectoral confidence indices announced last Friday sent mixed messages.

The outcome of the German federal election to be held on the weekend, the powerhouse of the European Union, will give us clues as to the new government and its forward-looking policies. However, Turkey will mainly be talking about the rate decision and its aftermath.