Turkey to expand Central Bank’s operational range, Albayrak vows

ANKARA

Turkey’s new treasury and finance minister has sought to reassure financial markets worried by his appointment and concerned over the independence of the Central Bank by saying it was unacceptable that its independence is “subjected to speculation,” while vowing the Bank would be “more effective than ever” in the new era.

“The independence of the Central Bank and its decision-making mechanisms cannot be a subject of speculation,” Berat Albayrak, who is also President Recep Tayyip Erdoğan’s son-in-law, was quoted as saying by the state-run Anadolu Agency on July 12.

He said the Central Bank’s capacities should be widened in pursuit of price stability.

“One of the main aims of our policies in the new period is a Central Bank that is effective like never before,” he said.

“In the new era we will support the Central Bank carrying out a more predictable, straightforward, and decisive monetary policy,” he noted.

Albayrak said their main priority would be reducing inflation with the help of monetary and fiscal policies.

This June consumer prices in Turkey rose 15.39 percent compared to the same month last year, the Turkish Statistical Institute (TÜİK) announced on July 3.

The minister added that policies would be determined within the scope of a sustainable and consistent growth target by prioritizing budget discipline, structural reforms, and single-digit inflation.

Warning from Moody’s

His comments came after Moody’s highlighted concern about the independence of the Turkish Central Bank early on July 12, saying that further challenges to its effectiveness would be negative for Turkey’s sovereign rating.

In a note to clients, Moody’s said changes to the governance of the Central Bank suggested its resolve to tighten monetary policy could weaken in the coming months.

This week President Recep Tayyip Erdoğan appointed his son-in-law and former Energy Minister Albayrak as the country’s treasury and finance minister, hours after being sworn in to a newly strengthened executive presidency.

“It is the further challenges to the effectiveness of the Central Bank that are most clearly credit negative at this point, given the importance of that institution’s role in addressing the growing imbalances in Turkey’s economy and financial system,” Moody’s said.

Albayrak’s comments helped the lira make up some of its losses from late July 11, trading at 4.8 to the dollar, a gain in value of 2.1 percent on the day.

Turkey’s embattled lira slumped almost five percent to new record lows in value against the United States dollar late on July 11, hit by worries about economic management and monetary policy under Erdoğan’s stronger executive presidency.

The lira weakened to a record low of 4.9767 against the dollar late on July 11. The currency opened the July 12 trading at around 4.83 against the greenback.

The lira has shed nearly 25 percent of its value against the U.S. currency so far this year.

“We have many instruments. I believe we will see interest rates fall in the period ahead,” Erdoğan told reporters after his first foreign trip on July 10 following his inauguration.

“I am sure not just our state banks but our private banks will shoulder responsibility if necessary,” he added.

Economists are urging tighter monetary policy to fight inflation.

Bank stocks plunge

Fall-out from Turkey’s tumbling lira hammered banking shares on July 11, sending the Istanbul stock market to its biggest one-day fall in two years.

The main share index dropped more than 5 percent while bank stocks lost 9 percent in their worst day for five years.

Investors are mainly selling bank stocks, reflecting fears that Turkish lenders could face a wave of bad debts as overextended companies struggle to repay foreign-currency loans.

Turkish firms had $225 billion in long-term, overseas borrowings as of April, almost all in dollars or euros, Central Bank data shows.

The Istanbul bourse’s index of bank stocks fell 9.19 percent by the July 11 close, recording its biggest one-day fall since June 2013, according to Reuters data.

The BIST 100 stock index fell 5.18 percent, recording its biggest one-day fall since a failed military coup in July 2016.

The yield on Turkey’s benchmark 10-year bond rose to 18.48 percent from 17.36 percent at close on July 10.