Lower rates seen as ‘vital’

The Turkish government will maintain its calls for lower interest rates following Erdogan’s victory, the country’s economy minister said on Monday.

“The Central Bank’s interest rates have to come down. The Central Bank has to be ahead of the market. If you follow the market, then the market starts managing you,” Economy Minister Nihat Zeybekci, who has repeatedly called for rates to be lowered, told Reuters in an interview.

He said that the central bank’s core mandate for price stability should be expanded to include employment and growth, although he added this would not be a top priority for the government in the coming period.

The need to consider additional factors beyond inflation could give the central bank more impetus for lowering rates.

“Our policy on interest rates is clear. We believe that interest rates are important in Turkey for the revival of domestic demand, investment and growth,” he said.

Zeybekci said interest rates needed to come down in line with inflation expectations, pointing out that while annual inflation was currently running at 9.3%, forward expectations for 12 months’ ahead are at around 7%.

“We see interest rates as an important factor in cost inflation.”

Erdogan, who won close to 52% of the vote, had said ahead of the vote that there would be no deviation from economic policies if he won.

“This [electoral] message means the approval of policies that were implemented up to now and the continuation of political and economic policies,” Zeybekci said, acknowledging the result had not been as strong as some of Erdogan’s supporters had hoped. “It also carries a bit of a warning. We understood all this very clearly,” he said.