Turkey plans more rate cuts, no financial aid for loan losses
Turkish Treasury and Finance Minister Berat Albayrak said he expects the central bank to cut interest rates sharply as the government seeks to revive the crisis-hit economy.
The rate reductions will be “significant” and will support a general decline in interest rates offered on loans by banks, Albayrak said in a televised news conference in the capital Ankara on Tuesday.
Turkey’s central bank slashed rates by 425 basis points to 19.75 percent last week after President Recep Tayyip Erdoğan replaced the institution’s governor earlier this month. The decision has prompted some economists to conclude that the central bank has lost its independence from politicians.
Albayrak said the central bank makes decisions based on economic data and that its monetary policymakers will decide on the size of future rate cuts. The bank has entered a period of easing, he said.
The minister is the son-in-law of Erdoğan, who claims controversially that lower interest rates bring down inflation. Albayrak said that he expects the government to beat its year-end inflation goal of 15.9 percent. Price increases will continue to slow into 2020 and beyond, he said.
Albayrak also said Turkey will not compensate losses caused by bad debt. Turkish banks have been saddled with tens of billions of dollars of soured loans following a currency crisis last year, which made the borrowing more difficult to repay. Investors have called on Turkey to deal with the debt load via a rescue plan for the corporate sector and capital injections for banks.
He said the private sector will conduct the process of dealing with the loans by themselves.
“There is no such thing as ‘the government must do this, compensate for the losses’,” Albayrak said.
Turkey’s consumer price inflation rate slowed to 15.7 percent in June from 18.7 percent the previous month. It had hit a 15-year high of 25.2 percent in October last year, just after the peak of the currency crisis.
Albayrak said he expected the budget deficit to exceed the government’s target for this year of 1.9 percent of economic output. But it will end the year at less than 3 percent of GDP thanks to its commitment to budget discipline, he said.
The 12-month budget deficit currently stands at about 4 percent of GDP, according to the latest available data. The government has increased spending markedly and slashed taxes to help stimulate the economy, disturbing budgetary balances.
Albayrak said he expected the economy to post positive growth this year. That prediction jars with the estimates of many economists, who say the economy will contract.