Sep 09 2019

Erdoğan says Turkey interest rates to fall sharply as central bank meets

Turkish President Recep Tayyip Erdoğan said interest rates will soon fall to single digits as the central bank’s monetary policymakers prepared to gather in the capital Ankara this week.

Big reductions in interest rates will mean inflation slows too, Erdoğan said in a televised speech on Sunday.

“We are reducing interest rates and will lower them to single digits in the shortest time,” Erdoğan said. “After it (interest rates) fall to single digits, inflation will fall to single figures too.”

The Turkish president replaced the central bank’s governor in July after he failed to agree a big cut in interest rates. Investors now say that the bank’s independence from political interference has eroded. The central bank meets on Thursday to rule on lending costs after two new deputy governors were appointed last week.

Turkish Treasury and Finance Minister Berat Albayrak, Erdoğan’s son-in-law, has predicted that inflation in Turkey will ease to single figures by October. The central bank reduced its benchmark one-week lending rate by 425 basis points to 19.75 percent in late July under the new stewardship of Governor Murat Uysal.

Consumer price inflation slowed to an annual 15 percent in August from 16.7 percent in July, the Turkish Statistical Institute reported last week. Producer-price inflation slid to 13.5 percent from 21.7 percent.

Most economists concur with Albayrak’s view that inflation in Turkey will slow substantially in September and October, citing favourable base effects and a slump in consumer demand caused by a currency crisis that erupted last summer. They say the lira may lose value again should the central bank cut rates too far, too quickly.

Erdoğan has caused concern among investors for interfering in monetary policymaking and for repeated claims that Turkey can bring down inflation by lowering interest rates. The theory confounds conventional economic thinking.

Monetary policymakers will cut rates by at least 250 basis points at Thursday’s meeting, the pro-government Sabah newspaper reported on Monday, citing unidentified analysts. The reduction is supported by the easing policies of the European Central Bank and U.S. Federal Reserve, it said.

The lira fell 0.4 percent to 5.73 per dollar at 12:31 a.m. in Istanbul on Monday, taking losses this year to 7.6 percent. The currency lost 28 percent of its value last year.