Erdogan wants more from central bank
Turkey’s economy has grown at an average pace of more than 4% in 12 months through June
Turkey’s central bank did the right thing by cutting interest rates last week and it should continue to do so, President Recep Tayyip Erdogan said.
“I believe it will be beneficial to continue this steadily,’’ Erdogan said in an interview Thursday in New York, hours after policymakers cut their overnight lending rate for a seventh straight month.
The president described the move as “careful and balanced,” and said the country’s commercial lenders should absorb the message and lower their own borrowing costs. That’s the best way to make credit available to entrepreneurs, extend Turkey’s sevenyear streak of uninterrupted economic growth and slow inflation, Erdogan said.
The Turkish leader, who’s been running the country for almost 14 years, has strong and unorthodox views on the benefits of lower interest rates. He’s frequently clashed with central bankers who take the more conventional line that rates must sometimes be kept high to rein in inflation. That’s also the view of most economists and investors, who typically argue that politicians should leave central bankers to do their job in peace.
Market gains
The new governor of Turkey’s central bank, Murat Cetinkaya, has delivered an Erdogan-friendly rate reduction at every meeting since he took the post in April, and his most recent one on Thursday took the overnight lending rate to 8.25 per cent. Turkey’s stocks, bonds and currency all gained on the move, even though it came against a backdrop of inflation that’s above 8 per cent and only slightly down from its year-ago level.
In the interview, Erdogan reiterated his belief that high interest rates cause inflation, instead of curing it, and he said they also deny a middleincome country like Turkey the investment it needs to take its $720 billion economy forward.
“You can only talk about development in a country where there’s investment,” he said. “But when interest rates are high, it’s not possible to invest.”
Erdogan cited the low or negative borrowing costs in some of the world’s wealthiest nations: “I say let’s look at America as an example, Europe, Japan, and, accordingly, let’s bring interest rates as low as possible.”
The Turkish economy has outperformed the countries Erdogan cited, growing at an average pace of more than 4 per cent in the 12 months through June. Economists have warned that the headline figures mask weaknesses, including one of the world’s largest currentaccount gaps, and that government efforts to encourage more borrowing could worsen the problem.