Time for Turkey to send a positive signal on interest rates - economist

Turkey must take the opportunity provided by the appointment of a new economic team to raise interest rates and restore the confidence of international investors, chief economist at the Institute of International Finance Robin Brooks said on Thursday.

Turkey appointed Lütfi Elvan as new treasury and finance minister on Tuesday following the sudden resignation of Berat Albayrak, who left the post following a turbulent period for the economy.

Albayrak was accused by critics of failing to take the necessary measures to reverse the decline in value of the Turkish lira, most notably allowing the central bank to raise interest rates, a move repeatedly rejected his father-in-law President Recep Tayyip Erdoğan.

Brooks said in the Financial Times that it was the right moment for a change in course: “What Turkey needs to do now is get on the right path and send a policy signal that it plans to raise interest rates.”

The depreciation of the lira has added further pressure on the economy as it struggles to recover from the impact of the COVID-19 pandemic. The nature of Turkey’s recent economic growth, driven by a boom in credit, had widened the current account deficit and contributed to the lira’s decline, making an interest rate hike particularly necessary, Brooks said.

But Turkey’s strong exports and young, dynamic population means there are real reasons for optimism if the right approach is taken, Brooks said. “Turkey could reap more benefits from a post-COVID-19 world than almost any other emerging market.”