‘Turkey’s cenbank could raise rates anytime’

Erdogan aide steps up efforts to boost tumbling lira

ANKARA, Nov 23, (Agencies): Turkey’s central bank can raise interest rates at any time, President Tayyip Erdogan’s chief economic adviser said on Thursday, stepping up collective efforts to talk up a local currency that an investor selloff has sent tumbling.

Erdogan has a long-standing opposition to high interest rates, calling them a tool of exploitation and equating them with treason.

But Cemil Ertem told Reuters in an interview the central bank would not hesitate to hike borrowing costs if necessary, including between policy meetings and on top of emergency measures it has already taken this week.

The dollar has surged some 17 percent against Turkey’s lira since midSeptember as foreign investor sentiment towards the country has soured, driven by concerns about frosty relations between Ankara and Washington, twin domestic deficits, and Erdogan’s warnings to the central bank.

“In the case of a deterioration in inflation expectations, the bank can hike rates, and it can do so any time, without necessarily waiting for the (next policy) meeting on Dec 14,” Ertem said.

The lira, which fell to a record low of 3.9800 on Wednesday, rebounded after his comments, firming to 3.9045 from 3.9360 beforehand.

Nothwithstanding Erdogan’s distaste for high rates, which has raised persistent doubts abroad about the central bank’s ability to act independently of political influence, the bank has moved to hike borrowing costs sharply in the past when the currency has come under extreme pressure.

At an emergency meeting in 2014, it lifted its one-week repo rate from 4.5 percent to 10 percent after an 18 percent rise in the dollar against the lira in little more than a month.

On Tuesday, the central bank responded to the current lira selloff with measures to tighten liquidity, reducing commercial banks’ borrowing limits on the interbank market for overnight transactions to zero. On Wednesday, Turkey’s prime minister and economic czar both tried to bolster the lira, saying the widening rift with the United States was “temporary”.

Those strains are focused on the US trial of a Turkish gold trader, Reza Zarrab, who is accused of violating US sanctions on Iran. Ankara has described the case as a “clear plot against Turkey”, and has accused US prosecutors of having links to the cleric it blames for a failed coup last year.

Investors, needed by Turkey to cover large budget and current account deficits that a falling lira will make harder still to finance, say the central bank needs to make a straightforward rate increase rather than just tweaking policy.

Ertem said it was wrong to say that measures already taken by the central bank to bolster the currency had had no impact, noting the bank had raised the weighted average cost of funding by 25 basis points to 12.25 percent.

“You could look and see tomorrow that it raised the late liquidity window (rate),” he added, referring to the highest of several instruments which it uses to set policy. It stands at 12.25 percent.

Kapital FX assistant research manager Enver Erkan, said that, theoretically “a hike of 150-200 basis points in (that)...rate might be necessary.” Erdogan, who wants lower rates to boost the economy, said last week a lack of government intervention in policy had left Turkey saddled with high inflation.