Turkey scrambles to thwart rush to US dollar

ANKARA/ISTANBUL

AFP Photo

Turkish authorities have scrambled to stem the markets’ rush to the U.S. dollar by issuing smoother statements about the Central Bank, after the Turkish Lira plunged to a series of historic lows.

Speaking to reporters in the capital Ankara, President Recep Tayyip Erdoğan said he would hold talks with Central Bank Governor Erdem Başçı and Deputy Prime Minister Ali Babacan after the lira’s latest decline to a record low.

Erdoğan noted that Başçı and Babacan had requested talks with him and they would meet after Babacan returns from his ongoing visit to New York City.

However, while stating that he would be meeting with the two internationally trusted economic figures, the president also continued to rail against what he called the “interest rate lobby.”

“The work of the interest rate lobby is known. The latest developments are completely due to dollar-euro moves. Those who decide to invest excessively in the dollar may end up being stranded,” he said.

His words contrasted with Deputy Prime Minister and government spokesperson Bülent Arınç, who said that nobody should “tell the Central Bank what to do,” speaking in a televised interview on March 6.

“It is not appropriate to tell the Central Bank what to do and to intervene its moves, which it takes in line with the legal framework,” Arınç said in an interview with NTV.

“It was not necessary to ask for more rate cuts from the Central Bank, as it is in line with the economic rules for Turkey to have rates of around 8 percent, with an inflation rate at around 8 percent,” he added.

The lira firmed to below 2.58 against the dollar from an all-time low of 2.6290 overnight after Erdogan’s remarks, but weakened to a fresh record low of 2.6365 after the release of U.S. data. The U.S. unemployment rate for February fell to 5.5 percent, which could encourage the Federal Reserve to consider hiking interest rates in June.

Since Feb. 19, the lira has lost over 6 percent against the dollar.

Babacan, Prime Minister Ahmet Davutoğlu and Finance Minister Mehmet Şimşek have held a series of meetings with investors in New York over the past few days.

Davutoğlu told reporters on March 5 that he believed the meetings with investors had been successful and said he had spoken with Başçı about the lira weakness, according to Reuters.

“Here what we need to understand is that, yes, Central Bank is independent and it is taking its own decision. At the end of the day the performance of the Central Bank and the performance of monetary policy is part of general economic performance,” he said later during a webcast at the Council on Foreign Relations in New York.

Davutoğlu said after the meetings in New York that he had spoken with Başçı about the lira and all necessary steps would be taken.

Economy Minister Nihat Zeybekci also underlined the independence of the Central Bank in a speech on March 6.

Speaking in Germany at the Turkey Economy Platform hosted by Deutsche Bank, Zeybekci said criticism by President Erdoğan of the Central Bank’s interest rate policy was not aimed at the independence of the Bank, Anadolu Agency reported.

“Most recently our prime minister said there should be more rate cuts and we expect them. In response to these remarks, Central Bank professionals said they do not agree with this opinion and we are not on the same page,” Zeybekci said.

“This is the strongest indicator of the Central Bank’s independence. Could there be clearer evidence for the independence of the bank?” he said.