Erdoğan wants to soothe markets ahead of polls

“The intervention by the Central Bank has relieved capital markets to a certain extent,” said Tuncay Özilhan, the head of the Supreme Advisory Board of Turkey’s biggest investor’s club TÜSİAD on May 24 in a routine meeting of the organization.

Özilhan was referring to a night before the Central Bank’s Monetary Policy Board’s emergency meeting, which increased interest rates by 3 percent to stop the steep decline of the Turkish Lira against the United States dollar over the last few days. It worked in minutes and the 4.84 rate was pulled back to 4.57, but in a few hours, it started to climb again.

Afterward, President Tayyip Erdoğan said the currency movements did not reflect the actual economic indicators.

There is a general belief among ruling Justice and Development Party (AK Parti) circles that the regression in the value of the lira has been something that has been manipulated or at least agitated from abroad ahead of the June 24 early elections by those who do not want to see Erdoğan win power again.

At around the closing time of the Istanbul Stock Exchange, the lira had depreciated again, to 4.76 per dollar. “Temporary solutions to problems raise question marks over a country’s sustainability,” said TÜSIAD head Erol Bilecik at the same meeting.

“The problems we face today are because of delayed reforms. We’ve put too much burden on banks. But it has become obvious that this is not the way to sustain our growth,” he added, indirectly referring to Erdoğan’s call for Turkish banks to lower interest rates. Erdoğan made it clear during his trip to the U.K. during May 14-16 that he saw high interest rates as the reason behind the rise in inflation, calling interest rates “the mother of all evils.” The president also said that he was not for the full independence of the Central Bank. A last-minute move by the AK Parti government, made just before parliament went to its pre-election recess, which enabled the government to intervene directly in currency operations, is thought to be another factor in the recent market jitters.

It is reported that Erdoğan has instructed a senior team to speak with local and international capital market leaders in order to calm them down. Mehmet Şimşek, the deputy prime minister in charge of the economy, and Central Bank Governor Murat Çetinkaya are expected to meet with representatives of financial institutions in Istanbul on May 28 and international investors in London on May 29.

When Erdoğan declared his election program on May 24, he said Turkey would stick to the market economy and the floating currency policy. Erdoğan did not use the word “independence” while describing the limits but said the Central Bank was and will be free to use whatever tool it sees necessary to fight inflation.

The decline of the lira affects Turkish people’s lives in many ways, mainly its effects on energy and transportation costs, since Turkey depends on fuel imports. In order not to reflect possible rises in fuel prices to citizens ahead of the elections, the government has already decided to adopt a flexible consumption tax to maintain fixed fuel prices despite low tax revenues.