Jul 05 2018

Turkey to reduce interest rates, PM Yildirim says

Turkey will prioritise bringing down interest rates and inflation, Prime Minister Binali Yildirim said.

“Monetary policy must be carried out by balancing our savings and our resources, and we will give the most attention to that in the coming period,” Yildirm told the state-run Anadolu news agency in an interview.

“It is our top priority to bring down interest rates, and consequently to reduce inflation," he said, without providing further details.

Investors are seeking clues as to whether President Recep Tayyip Erdogan will reduce interest rates after his re-election on June 24 – as he had pledged to investors in London in May – or will follow the prudent monetary and economic policies needed to tame inflation of 15.4 percent and reduce pressure on the lira, which has slumped almost 20 percent this year.

Yildirim said the public sector will make reductions in expenditure, therefore reducing its income needs.

Ratings agencies and the International Monetary Fund have joined a chorus of institutions calling for rate hikes to rebalance Turkey’s economy. Economic growth has averaged more than 8 percent since June last year, fuelled by government incentives including tax cuts and loan guarantees.

The central bank was forced into 425 basis points of rate increases in May and June after the lira’s slide raised fears of a possible currency crisis. Some economists and analysts have called on Turkey to apply to the International Monetary Fund for funding and to help it implement a program of measures to get the economy rebalanced and back on track.

The lira rose 0.4 percent to 4.65 per dollar at 12:07 p.m. in Istanbu; The lira is off a record low of 4.92 against the U.S. currency reached in the second half of May.

Yildirim was speaking in one of his final interviews before the post of prime minister is abolished by the introduction of Turkey's full presidential system of government. Erdogan will announce his new team on Monday.