Turkish economy minister censures Central Bank’s interest rate decision

ISTANBUL

As depicted by Hürriyet's Survivor-themed photoshop effort, a number of government figures are struggling to make Central Bank Governor Erdem Başçı sharply decrease interest rates. Başçı announced a 75-point rate reduction on June 25, but this has not been enough to satisfy many officials.

Turkish Economy Minister Nihat Zeybekci has taken to social media to censure the Central Bank’s decision to reduce interest rates by 0.75 points, accusing the institution of jeopardizing growth and raising economic vulnerability.

“The expectations and priorities of the real sector, which is to produce, provide employment and invest, were different and the Central Bank’s decision is out of the real sector’s expectations and closer to the money markets,” Zeybekci said through his Twitter account in the morning of June 25.

The Central Bank cut its benchmark interest rate to 8.75 from 9.5 percent, disappointing expectations for a deeper cut, which has been a move favored by Prime Minister Recep Tayyip Erdoğan.

Erdoğan, determined to maintain growth ahead of the presidential elections in August, as well as the parliamentary polls next year, has been disappointed by the Bank’s overall policies, a stance that has also been shared by Zeybekci.

“As this decision supports interest expectations, the hot capital inflow that is invested in interest awaits proper time for monetary speculation,” Zeybekci wrote.

“High interest rates are not suitable for the Turkish Lira, which needs to be measured in its real value [lower exchange rate], as it aims to make foreign currency rates attractive for imports, and so hamper exports,” the minister’s post read, accusing the bank of backing policies that shift the focus of growth from export to import.

“The import-based growth lays the base for current account balloon explosions that constantly lead to a crisis,” he added.

Last month the Central Bank cut its one-week repo rate by 50 basis points (BPS), its first cut in a year.
Erdoğan belittled the move as not enough to unwind its sharp hike in January, when it raised the rate by 550 BPS, prompting investors’ fears over the Bank’s sovereignty.

Speaking to daily Hürriyet on June 21, Justice and Development Party (AKP) deputy chairman Numan Kurtulmuş used an even harsher tone that unnerved investors by saying, “the government should tackle the stranglehold of the Central Bank, just like it did against the military tutelage.”

Deputy Prime Minister Ali Babacan and others, including Finance Minister Mehmet Şimşek, have downplayed concerns by saying the government fully understands the need for an independent Central Bank and does not interfere in the country’s monetary policies.