Turkey’s ‘private’ sector okays 10 pct price cuts

Inflation fight steps up

ISTANBUL, Oct 9, (Agencies): Turkey’s private sector has agreed to cut prices on the goods it sells by at least 10 percent across the board, Finance Minister Berat Albayrak said on Tuesday, as he called on businesses to join a national struggle to tamp down runaway inflation.

Financial markets gave a lukewarm appraisal to the programme, which includes a freeze in energy prices. Albayrak, President Tayyip Erdogan’s son-in-law, has promised a “fully fledged fight” against inflation - but investors say delivering that would require aggressive interest rate hikes and a more orthodox approach to monetary policy.

The lira has fallen some 40 percent this year, driving up the price of everything from food to fuel and sending inflation to 25 percent last month, its highest in 15 years.

The sell-off has been sparked by concern about Erdogan’s influence over monetary policy. A self-described “enemy of interest rates”, the president wants borrowing costs lowered.

“It is not sufficient to cope with inflation,” said Kaan Nazli, a senior economist at asset manager Neuberger Berman.

“What you really need to do is to engineer a continuous slowdown in the economy, keep monetary policy tight and do things that way.”

The lira weakened slightly after Albayrak’s presentation in Istanbul. It was at 6.1450 to the dollar at 1404 GMT, about half a percent weaker on the day.

“The fight against inflation and for price stability is not a fight that can be conducted by the state and institutions alone,” Albayrak said.

The voluntary discount would be reflected in all the goods that make up the inflation basket, and prices would be lowered by a minimum 10 percent until the end of the year, he said.

Banks will also offer 10 percent discounts on their highest interest rates, he said. It was not immediately clear how many goods would ultimately be impacted, or how many companies would take part, but Albayrak called on the public to support those that did push through the price cuts.

Inflation

For years, volatile food prices have vexed policymakers’ attempts to rein in inflation. Ankara’s inability to cool the rise has fuelled a blame game among food producers and retailers, with each accusing the other of hiking prices.

Industry officials and economists say there are deeper structural problems, from the lack of a long-term agricultural policy to a supply chain hindered by middlemen and arcane bureaucracy.

In September, the cost of food and non-alcoholic drinks rose more than six percent from a month earlier, heaping more pressure on consumers.

“What is missing is structural reform to solve issues of persistently high food inflation, which to a large extent is caused by the fact that Turkey imports a significant amount of food,” said Piotr Matys, an emerging markets foreign exchange strategist at Rabobank.

“It looks like these are pretty temporary measures. What we really need is a long-term solution to prevent food prices from rising again.”

Erdogan has called on Turks to report unusual price hikes in shops, saying it was the government’s responsibility to raid the inventories of stores if necessary.

The trade ministry said on Monday it had asked more than 100 companies to explain what it says were excessive price increases of goods, in a probe into suspected price gouging after it inspected more than 69,000 products at nearly 4,000 companies.

As the currency crisis deepened in August, the government made it illegal for companies to arbitrarily impose price increases if they were not impacted by a rise in input costs or the exchange rate.

Meanwhile, Turkish President Tayyip Erdogan named several of his advisers and a theology professor to a new economic policy committee, as the country seeks to reassure foreign investors spooked by a falling lira currency and high inflation.

Culture

The board was one of nine committees, in areas also including education, science, culture, security and health, to which Erdogan appointed members in an Official Gazette statement on Tuesday.

They are part of changes in the structure of government since Turkey switched to an executive presidency following Erdogan’s election victory in June.

One economist criticised the make-up of the economy committee, which included the BDDK banking regulator’s chairman and presidential advisers Cemil Ertem, Hatice Karahan and Yigit Bulut.

“Huge opportunity wasted. Turkey has some top-notch economists and bankers, and could even have brought on some international experts to add new ideas and credibility, which is much needed at the moment,” Timothy Ash of BlueBay Asset Management wrote on Twitter.

Erdogan, a self-described “enemy of interest rates”, wants borrowing costs lowered to keep the economy growing. His repeated criticism of monetary policy has undermined confidence in the central bank and sparked the lira sell-off and fuelled already high inflation.

The government is due to announce new measures to bring down inflation at 1 pm. (1000 GMT) on Tuesday.

Erdogan’s economy committee also included Servet Bayindir, a theology and economics professor specialising in Islamic finance.

In all, Erdogan named 76 members to the nine policy boards.

In other news, they are among Istanbul’s most iconic sights – magnificent waterside mansions strung out along the Bosphorus as the waters of the strait dividing Europe and Asia lap almost at their front doors.

Once the preserve of the Ottoman elite and affluent foreigners working in what was Constantinople, the mansions, known as yalis, were made famous in novels and more recently through modern Turkey’s hugely successful TV soap operas.