Turkish Central Bank will decide itself on any rate cuts: Governor

KAYSERİ/ANKARA

DAILY NEWS photo

The Turkish Central Bank governor responded to the prime minister’s call for an urgent interest rate cut, saying the bank would decide for itself on a possible cut that “should be reasonable, measured, and well-timed.“

“The decision of when to cut interest rates belongs to the Monetary Policy Committee, but measured steps to reduce interest rates can be taken in the future,” Governor Erdem Başçı said, while answering reporters’ questions after a presentation in the Central Anatolian province of Kayseri on April 7.

Asserting the crucial nature of the timing and the speed of such a decision, Başçı said the bank’s strategy was first to make a sudden hike, as it had done in January, shocking the markets, and then slowly scaling back the rates.

The governor also noted investors shoudn’t expect a steep cut and warned that this step should be taken without shaking trust in Turkey.

Speaking ahead of a visit to Baku on April 4, Prime Minister Recep Tayyip Erdoğan said markets had rallied on the back of the election results and lower interest rates would encourage investors to pump more money into Turkey.

“Yields are falling. In line with this, the Central Bank will probably convene an extraordinary monetary policy committee meeting,” he said.

Also referring to Erdoğan’s hint of an urgent meeting, Başçı said there is no need for an interim policy meeting.

‘Politicians’ remarks affect foreign perception’

Responding to questions about politicians’ interference with the independency of the Central Bank, Başçı said this is not a usual situation in foreign countries.

“Politicians in other countries prefer not to talk about central bank policies,” he said, adding despite Turkish citizens being used to political figures making comments about monetary policies, these remarks take a toll on the bank’s image in foreigners’ eyes.

“Domestically, everybody knows the Central Bank only looks at data, but this creates problems in perception abroad,” he said.

He said the citizens in Turkey think, “The Central Bank will do as it knows.”

Başçı and his administration have been repeatedly criticized by the government for “jeopardizing growth with its policies,” which mostly prioritize inflation and currency health.

The Central Bank, which is officially independent, aggressively raised its key interest rates in January in a bid to stem a steep drop in the country’s national currency, the Turkish Lira.

The overnight lending rate is now 12 percent, while the borrowing and one-week repo rates are at 8 percent and 10 percent respectively.

The January hike came amid an escalating political crisis for Erdoğan, sparked by a graft probe targeting his inner circle, months after the country was rocked by mass anti-government protests.

Growth concerns

Figures close to the prime minister rushed to support his call for lower interest rates as his remarks re-kindled the perpetual debate on the dichotomy between short-term growth and long-term stability.

Economy Mister Nihat Zeybekçi, who reflects his predecessor Zafer Çağlayan’s strict opposition to high interest rates, was the first to back Prime Minister Recep Tayyip Erdoğan, who called for an emergency interest rate cut on April 4.

“The current interest rates do not support production, employment and Turkey’s growth. We expect necessary steps regarding this to be taken as soon as possible,” Zeybekçi said, addressing businessmen in the Aegean province of Denizli.

The prime minister’s son-in-law, Berat Albayrak, a former businessman and a current columnist, also penned an open letter to the Central Bank, asking for an immediate interest rate cut.

Albayrak said he remained silent when the Central Bank raised the key interest rates massively in January to save the lira because of the “chaos that some groups wanted to create” then, but claimed the time had arrived for the bank to take a step back.

“Another resistance era has started again, interest rate up and down!” were the words used by the businessman to start his weekly column at pro-government daily Sabah.

“Everybody knows the cost of 1 percentage point in interest rates is 4.5 billion Turkish Liras. You cannot scatter the gains that the country earned by scraping with a scoop,” he wrote.

He also accused the Central Bank of being pro-status quo and not considering the interests of the real economy in making decisions.