May 15 2018

Erdoğan says central bank free to set policy: adviser

Turkish President Recep Tayyip Erdoğan said the central bank is free to set monetary policy, his senior economic adviser said, as the lira tumbled to a new record low against the dollar.

"Interest rates will not fall on command, they will fall after necessary conditions are provided,” Cemil Ertem said, citing Erdoğan's comments to investors in London yesterday. “The Central Bank has the independence to use its tools when necessary.”

In an interview with Bloomberg late on Tuesday, Erdoğan signaled that he would reduce interest rates in the country to stimulate investment, saying he will take more control of monetary and economic policy after snap presidential and parliamentary elections on June 24.

Ertem said the government’s priority was to reduce inflation and it will support the central bank in fighting price increases should Erdoğan win the vote.

Erdoğan wasn’t saying the central bank should reduce interest rates at its next meeting on June 7, rather he thinks rates should be reduced as a general goal, Ertem said. Erdoğan maintains controversially that interest rates should be reduced to tame inflation. He repeated that view on Monday.

Turkey’s lira hit 4.46 per dollar on Tuesday and 10-year benchmark bond yields climbed to a record 14.5 percent after Erdoğan’s comments.

Investment will pour back into the country after the elections and inflation will slow, Erdoğan said, according to Ertem.