Gov’t signals changes in Central Bank law amid rising tension

ERdinç Çelikkan - SEOUL

Minister Nihat Zeybekci has signaled a change in the Central Bank’s role.

Economy Minister Nihat Zeybekci has signaled a potential change in the law on the Turkish Central Bank, which has recently been harshly criticized due to its rate policies by several leading government figures. 

“Many central banks have many responsibilities in a range of areas, from growth to employment and trade, in addition to price stability across the world. We should discuss whether these responsibilities can be given to our Central Bank as well,” Zeybekci said during his visit to South Korea on Feb. 26. 

He added that the Central Bank acted too fearfully in cutting interest rates, long a bugbear of the government, meaning that Turkey was now forced to unnecessarily shoulder more burdens. 

According to Zeybekci, the Bank should have made two or three more cuts to rates. 

“I found its recent rate cuts technically adequate, but proportionally inadequate. We still have concerns over the existing rates, but we have not been understood. When discussing the Central Bank’s policies, we usually do not refer to people in duty. The existing law on the Central Bank gives the bank many authorities, but very limited responsibilities. The bank is only responsible for maintaining price stability and monetary policy, but many other things are ignored including economic growth, foreign trade, employment and the current account deficit. We need to discuss this,” he added. 

On Feb. 24, the Central Bank cut the upper overnight lending rate by 50 basis points to 10.75 percent and reduced the benchmark weekly repo rate by 25 basis points to 7.5 percent, but this again failed to satisfy many in the government, who want sharper cuts.

‘6 percent is ideal’

Zeybekci said it would be better if the benchmark rate was around 6 percent.

“If you are paying 12-13 percent interest rate as a trader when you go to the bank, with an expected inflation of around 5 percent, this net cost of 7 percent is not tolerable,” he said.

Zeybekci has been one of the biggest supporters of a sharp cut in interest rates, citing the country’s inflation target of 5 percent this year.

When the Central Bank trimmed its key interest rate slightly on Feb. 24, it said it had taken the action in the face of falling inflation. 

The bank said it would keep monetary policy cautious until evidence was clear of a significant drop in the outlook for inflation, which is falling steadily but remains above the bank’s target level.

According to the Central Bank’s survey of business leaders’ and economists’ expectations, consumer prices are expected to rise 6.77 percent in 2015, above the government’s target of 5 percent.