Turkey central bank says considerable room to lower rates again

Turkey’s new central bank chief, installed by President Recep Tayyip Erdoğan in early July, said he saw “considerable” room to reduce interest rates.

Current market prices meant that further rate cuts were on the agenda, Governor Murat Uysal told reporters during a televised news conference in Ankara on Wednesday. The central bank slashed rates by 425 basis points to 19.75 percent last week, meeting Erdoğan’s calls for lower borrowing costs, after keeping them steady since October.

Turkey’s central bank is under strong political pressure to cut interest rates after a currency crisis that peaked last summer ravaged economic growth in the NATO member. Erdoğan sacked Uysal’s predecessor Murat Çetinkaya for failing to reduce interest costs and blamed him for the government’s failure to retain control of Istanbul and Ankara at local elections that ended in June.

Uysal said the central bank was lowering its inflation forecast for the end of the year to 13.9 percent from 14.6 percent. Consumer price inflation in Turkey stood at 15.7 percent in June.

Uysal said the central bank would now use so-called “real interest rates” in other countries as a reference point when setting its own monetary policy. Such rates are calculated by taking interest and subtracting inflation from it.

The governor said the central bank has independence in the use of tools to reach its inflation goals and doesn’t worry about that independence.

Erdoğan said last week that he expected inflation to slow to single digits in the third quarter of the year. He said further significant reductions in interest rates were necessary.