TURKEY WON’T OPPOSE MARKETS, SIMSEK SAYS
Turkey won’t look to push back against financial markets, Deputy Prime Minister Mehmet Simsek said on May 25, although he acknowledged investors remained concerned after the Central Bank was slow to react with a rate increase this week. The Central Bank hiked its top interest rate by 3 percentage points to 16.5 percent at an emergency meeting on May 23 to avert a full-blown crisis in the lira. The currency has tumbled some 20 percent this year on deepening concern about President Tayyip Erdogan’s grip on monetary policy. “Turkey will solve all its issues with a rules-based market economy and will not stand stubbornly against markets,” Simsek said in an interview with broadcaster NTV. “We understand the concerns of the market. We understand the worries that investors might have. We took the necessary steps to address these concerns and we will continue to do so.”
Simsek, a former Wall Street banker, and central bank governor Murat Cetinkaya are due to meet with overseas investors next week, in what are likely to be talks aimed at soothing concerns about the outlook for Turkish policy. They will also meet with representatives of Turkey’s financial and business world in Istanbul on May 27, bankers said. Investors appear to remain skeptical. The lira initially recovered after the emergency rate hike but has since given up a large slice of those gains. “The Central Bank took a strong step although it was a late one, and it was effective,” Simsek said.
It took days of preparation by Turkey’s top economic ministers and intervention by the prime minister to convince President Tayyip Erdogan of the need for a sharp increase in interest rates, three people familiar with the matter told Reuters. A self-described “enemy of interest rates”, Erdogan has, with elections just a month away, repeatedly called for lower borrowing costs to fuel credit growth and spending.
International investors want to see higher rates to rein in double-digit inflation and have dumped the lira because of concerns that Erdogan exerts too much influence over monetary policy. Simsek said the emergency rate hike proved the Central Bank’s independence and that it would continue to take necessary measures with the support of the government.