Turkish gov’t vows commitment to central bank independence

ANKARA

Deputy Prime Minister Bülent Arınç answered reporters’ questions after a Cabinet meeting, where Central Bank Governor Erdem Başçı made a semi-annual presentation. AA Photo

Turkish Deputy Prime Minister Bülent Arınç has said that the government has no intention to intervene in the Central Bank’s policies amid an escalated tension over interest rates.

“As you all know, the independence of the Central Bank is one of the basic principles mentioned in the founding manifesto of our party. We haven’t deviated from this principle so far and we have no intentions to do so in the future,” Arınç said on June 2, answering reporters’ questions after the Cabinet meeting, where Central Bank Governor Erdem Başçı made a semi-annual presentation.

Başçı’s presentation was routine but Prime Minister Recep Tayyip Erdoğan’s recently ramped up criticism against the bank put the meeting under spotlight. All eyes were locked to the meeting to see any indication regarding the course of tension, which has been prompted by the prime minister, who accuses the Central Bank of jeopardizing public interest and economic growth by keeping interest high.

However, Arınç’s remarks indicate that Başçı’s presentation has managed to convince the government members over the necessity of keeping rates.

“We think that lower interest rates will result in a significant increase in investments and will prompt foreign and domestic investors to be more ambitious. However, when we look at the picture, it is possible to see a uniformity and accord in the Central Bank’s decisions,” he said. “Extraordinarily well-directed evaluations have been made. We thanked the governor.”

In his presentation to the Cabinet, published on the Central Bank’s website, Başçı said a “temporary tightening in short-term interest rates” had been an effective tool with which to fight inflation and that a fast depreciation in the lira had also been prevented as a result.

The Central Bank cut interest rates for the first time in a year last month, despite high inflation, after calls for a rate cut from Erdoğan, who is eager to maintain economic growth ahead of an August presidential election and parliamentary polls in 2015.

Erdoğan said the bank’s 50-basis-point cut in May in its one-week repo rate, the main rate at which it funds the market, was not enough, renewing concern about political interference in monetary policy.

The deputy prime minister also ruled out the claims that the government is planning to remove Başçı from his office, saying “we don’t have any plans for neither making a change in law, presenting a draft law nor any other efforts that can mean something else,” he said.

“Everybody is trying to do his job in the best possible way,” he added.