Nothing more critical than Central Bank credibility: Turkish deputy PM

DAVOS

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The Central Bank will do what is “necessary” on interest rates, Turkish Deputy PM Mehmet Şimşek has said at the World Economic Forum in Davos, adding that nothing was more critical than its credibility.

Asked whether there was any obstacle that could prevent the Turkish Central Bank from hiking or cutting rates, Şimşek said: “I don’t know anything more critical than maintaining the Central Bank’s credibility and its moves to do the right things in the right time.”

He said the Central Bank did what it needed to in the past in a bid to maintain macro financial stability. “The bank will do the same right now to enable us to reach our inflation target,” he was quoted as saying by Anadolu Agency on Jan. 19. 

Şimşek said he generally did not make comments about the bank’s policies, the rates or foreign exchange rates in principle, noting that the policy framework was quite clear. 

“The Central Bank’s duty is crystal clear and the bank has independence in using instruments to fulfill its duties. Unfortunately, some past discussions and hesitations have created a credibility gap for the Central Bank. We need to have a holistic approach, but at the same time, we must always keep the main targets in mind,” he said. 

He said Turkey had a robust fiscal policy that presented a great potential to create new jobs. 

“Our monetary policy mainly focuses on maintaining price stability and macro financial stability,” said Şimşek. 


‘Free to change rates’

Şimşek also said the Central Bank was independent and free to change interest rates. 

“I want the Central Bank to safeguard price stability and inflation targets,” he told Reuters on the sidelines of the World Economic Forum in Davos. “I am all in favor of central bank independence.”

Asked if he could reassure investors the bank was not under pressure from the government to hold off raising rates, Şimşek said, “There is nothing holding them back legally.”

A Turkish presidential aide also said interest rates were “on the table” as an option to combat falls in the Turkish Lira.

“The Central Bank can use the rate ‘gun.’ This option is also on the table,” said President Recep Tayyip Erdoğan’s chief economy adviser, Cemil Ertem, on Jan. 19. 

“The Central Bank’s hands are not tied. Besides, the lira has recently strengthened significantly thanks to its moves,” he added in an interview on NTV. 

The lira steadied on Jan. 19 after weakening by almost 1 percent against the dollar on Jan. 18, with the Central Bank opening a $300 million forex depot auction aimed at shoring up the currency.

The markets are awaiting the results of the bank’s next rate-setting meeting, scheduled for Jan. 24, as well as Fitch Rating’s Turkey rating review on Jan. 27.