Graft probe shattered currency calculations: Turkish Central Bank chief

ANKARA - Hürriyet

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The corruption probe that spawned Turkey’s huge political crisis has shattered the bank’s currency rate forecasts, Central Bank Governor Erdem Başçı has admitted, while also expressing his disturbance at former Economy Minister Zafer Çağlayan’s “critical statements.”

Giving a presentation on Central Bank policies to the Planned Budget Commission at Parliament Feb. 13, Başçı also defended his optimistic 1.92 dollar/Turkish Lira ratio prediction, which had stirred a huge debate.

“1.92 was my prediction then and I don’t regret it. However, the Dec. 17 operation has turned our calculations upside down and the goal has been missed,” he said at the meeting, which was closed to the press.

“Citizens’ perceptions had started to turn negative and we couldn’t change that,” he reportedly told the Commission.

In an interview in late August, the governor had said the public should not be surprised if the rate – which was then at 2.07 – would be at 1.92 “or even higher” by the year’s end.

However, investors’ selling off of emerging market assets in expectation of the U.S. Federal Reserve continuing to gradually reduce its stimulus program has weakened the lira. Concerns over political stability in the country have also escalated following the corruption investigation launched Dec. 17 and raised pressure on the currency, causing the lira to drop to historic lows of 2.39 to the dollar on Jan. 27.

The Central Bank’s hike all of its key interest rates a day was only able to bring down the fever slightly, and the dollar/lira rate is currently proceeding at around the 2.2 level.

In his remarks at the Commission, Başçı asserted that all the bank’s calculations pointed to an exchange rate of a 1.92 to the dollar under the conditions of that time, and stood behind his decision to make such a statement.

Many analysts had warned of the risks of the Central Bank adopting such a bold approach, saying its duties may require taking steps back according to changing circumstances. But Başçı insisted that “an environment where the feeling of direction was lost” required such a stance.

Political remarks

The governor, who has generally avoided making bold comments regarding the Bank’s relationship with political authorities, also made a significant statement regarding the ongoing debate over the bank’s independence from political influence, which has particularly been questioned regarding interest rates.

Başçı claimed the Central Bank’s policies were not shaped by political impositions, as claimed by some analysts, but statements from certain politicians had caused such a perception to emerge, particularly abroad.

“The Central Bank is independent, we are not influenced by anybody. In particular, statements from the minister who was in charge of foreign trade [Çağlayan] that targeted us over foreign exchange rates and interest rates now and then, didn’t affect us much domestically, but did have an adverse affect abroad,” he said.

“These kinds of statements damage our Bank’s reputation and trustworthiness and we are bothered by that,” Başçı added.

Çağlayan, who resigned from his post after being implicated in the corruption probe that broke in December, was a vocal supporter of low interest rates and champion of Turkish exporters, who benefit from a weak lira.

He repeatedly said the Central Bank should not interfere in supporting the currency and accused the bank of “stepping on the brakes” for growth by raising interest rates.

Prime Minister Recep Tayyip Erdoğan, who is also keen to maintain economic growth ahead of an election cycle starting with the local elections on March 30, has been a vociferous opponent of higher borrowing costs, railing against what he describes as an “interest rate lobby” of speculators seeking to stifle growth and undermine the economy.