Jul 12 2018

Ensure central bank independence, IMF warns Turkey

Turkey must ensure its central bank has “full operational independence” amid “market volatility,” International Monetary Fund (IMF) spokesperson Gerry Rice said in response to a question on Turkey on Thursday.

Rice urged Turkey to commit to “sound economic policies” amid a period of severe weakness for the Turkish lira, which has been steadily falling against the dollar since Turkish President Recep Tayyip Erdoğan announced a cabinet on Monday that lacked experienced economists and left the key economic ministry in the hands of his son-in-law, Berat Albayrak.

Erdoğan’s unorthodox view on the economy, including his idea that high interest rates cause, rather than curb, inflation, are thought to have scared many investors away from Turkey, which is now even more firmly in the president’s grasp after his election as the country’s leader under the new executive presidential system on Jun. 24.

The president reiterated his desire to lower interest rates on Wednesday, after which the lira continued to slide, briefly hitting a record low of 4.98 to the dollar on Thursday. Meanwhile, inflation has surged to its highest levels since 2003.

 “Turkey, what I would say is that, in light of the recent market volatility, the new administration will need to demonstrate a commitment to sound economic policies, to promote macro economic stability and reduce imbalances while ensuring full operational independence of the central bank to pursue its mandate of ensuring price stability,” said Rice on Thursday.

The president vowed to take more personal charge of the economy during an interview with Bloomberg TV in May, after which the lira fell to record lows. The fall was arrested by central bank intervention and successive interest rates hikes in in May and June.