Erdoğan says Babacan took IMF orders, repeats lower interest rate call

Turkish President Recep Tayyip Erdoğan appeared to take aim at political rival and former Deputy Prime Minister Ali Babacan at the weekend, saying Babacan resisted his decision to ride out the 2008 global financial crisis without International Monetary Fund help.

Certain persons who are forming a new political party to compete with the governing Justice and Development Party (AKP) took orders from the IMF, Erdoğan said during a television interview at the weekend, according to Star newspaper. Babacan was in charge of managing Turkey’s economy when the financial crisis struck.

“These people are lovers of interest rates,” Erdoğan said, repeating his assertion that reducing them slows down inflation.

“I want to keep reducing interest rates,” he said. “Interest rates are the cause, inflation is the outcome.”

Investors credit Babacan with leading Turkey’s economic recovery from a banking crisis in 2001 with the help of IMF loans and policies, which included ensuring central bank independence and curbing government spending. The ex-minister is in the process of forming a new political movement to rival the AKP, stressing that Turkey needs to strengthen its democracy and human rights.

Turkey’s central bank has slashed interest rates in half to 12 percent since July, when Erdoğan sacked and replaced its governor for failing to support the government’s pro-growth economic policies. Economists partly attribute a currency crisis that erupted in August 2018 to an overheating economy and Erdoğan’s stance on interest rates, which has fuelled investor unease.

Inflation in Turkey accelerated to 11.8 percent in December from 10.6 percent the previous month and 8.6 percent in October, the lowest level in about three years. The central bank next meets to decide on borrowing costs on Jan. 16.