Turkish PM hits out at Central Bank's slight rate cut

ANKARA - Reuters

The Turkish prime minister’s harsh criticism of the Central Bank has rattled markets as investors have priced in concerns that pressure on the bank will continue.

The Turkish Lira, which started off the day at around 2.087, lost more than 1 percent during the day and rose above 2.1070 after Prime Minister Recep Tayyip Erdoğan reiterated his harsh criticism of the bank for only slightly easing a key interest rate, saying it was insufficient.

The BIST 100 index also plunged over 1 percent to below 77,780 points.

“Decreasing the interest rates by half points is making fun of this nation. The decisions to be made need to be serious,” he said, addressing members of his party.

“The authority they give an account to is not the public, but sooner or later we will make them give an account for this,” he said.

“The time will be up and when it is, we will do what is needed. It is a separate issue, but we need to solve this issue,” he said. “The interest rate must be lowered, so that real investments can increase.”
The bank had raised rates sharply at the end of January to combat a fall in the lira to record lows amid an emerging markets sell-off and a corruption scandal.

As the escalating political tension ahead of the March 30 local elections and persisting global challenges kept the lira/dollar ratio at high levels, the Central Bank remained committed to a tight policy, with the support of analysts and investors.

However, the partial recovery of the currency and investment environment after the elections have encouraged Erdoğan to again start expressing his well-known opposition to high interest rates.

Under mounting pressure from the government to bring rates down to their former levels, the bank on May 22 trimmed the benchmark one-week repo rates from 10 to 9.5 percent, keeping the rate corridor steady between 8 and 12 percent, in a move that has been interpreted as keeping a foot in both camps.

The prime minister slammed the bank while returning from a rally in Cologne over the weekend. “You raised the interest rate by 5 points all at once, but now you reduce by only half a point. Are you kidding?” Erdoğan told a group of reporters in his plane.