Turkish central bank hints at liquidity steps, urges reform

Turkey’s central bank indicated that it might take steps to boost liquidity as the economy showed few signs of emerging from a deep slump.

“In view of cyclical conditions, liquidity steps can be taken to support financial stability,” Central Bank Governor Murat Çetinkaya said in an interview with the state-run Anadolu news agency on Thursday.

Turkey is in the middle of the deepest economic downturn in at least a decade after a currency crisis swept through its financial markets last year, wrecking consumer confidence and curbing lending by banks. Many economists are predicting that negative quarterly economic growth, which began in the third quarter of 2018, might last well into this year.

Çetinkaya stressed that any liquidity measures that the central bank might take would have no bearing on its approach towards monetary policy and interest rates.

“Our stance on monetary policy is clear; the tight stance will be maintained until we observe a significant improvement in inflation dynamics,” he said. The central bank is next due to meet on interest rates in March.

Çetinkaya spoke to Anadolu as data showed economic activity continuing a decline seen since the lira dived to a record low of 7.22 per dollar in August. Industrial output slumped an annual 9.8 percent in December, the Turkish Statistical Institute said earlier in the day.

The lira fell 0.5 percent to 5.30 per dollar at 12:51 p.m. in Istanbul, still almost a third weaker than it was at the start of 2018.

Turkey’s central bank has kept interest rates on hold at 24 percent since increasing them by 625 basis points in September to help arrest the lira’s decline. Its approach on interest rates has persisted even as inflation slowed to just above 20 percent from a 15-year high of 25.2 percent in October.

Çetinkaya warned that a slowdown in global economic activity might curb the appetite of investors to take risks such as investing in emerging markets. That made sound and coordinated monetary policy all the more important, he said.

“The recent policy mix is a reflection of this awareness,” he said. “We believe that the most important contribution of the Central Bank of Turkey to this process will be to maintain the focus on price stability.”

Çetinkaya urged authorities to take measures ensuring long-term improvements in economic stability, including steps to boost productivity and competitiveness. Policies to encourage prudent borrowing would also be important, he said.

“Looking ahead, we will maintain our efforts to ensure further focus on these issues,” Çetinkaya said.

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