Jun 12 2018

Doomsday-mongers will regret Turkey stance – Şimşek

Turkey’s economy will make a “soft landing” following elections in less than two weeks, meaning doomsday-mongers will regret their negative approach towards the country, Deputy Prime Minister Mehmet Şimşek said.

Strong monetary policy decisions by the central bank have already calmed financial markets and a range of reforms that the government will enact after the election will ensure further success, Şimşek said in comments on Twitter on Tuesday.

Turkey’s central bank was forced to raise interest rates by a total of 425 basis points to 17.75 percent in May and June after the lira sank to a record low of 4.92 per dollar, deepening concern for a potential currency crisis in the NATO member.

The economy grew 7.4 percent in the first quarter on the back of controversial government stimulus measures that included tax cuts and loan guarantees. The country’s strong growth rates will continue after the vote, President Recep Tayyip Erdoğan said on Monday.

Şimşek is among Turkish officials who persuaded Erdoğan to agree to last month’s interest rate hikes. Erdoğan and some of his closest economic advisers maintain that higher interest rates spur inflation, in contrast to conventional economic theory. Inflation in Turkey is also caused by rising production costs and imperfect competition, rather than excess demand, they say.

The lira fell 0.6 percent to 4.55 per dollar on Tuesday, extending losses made on Monday. The currency has lost more than 15 percent against the dollar this year,

In election rallies over the past few weeks, Erdoğan has maintained that the lira's losses are unjustified and part of a foreign plot against Turkey and to prevent his government from winning the June 24 presidential and parliamentary elections.

Turkey, along with Argentina and Ukraine, is among the most vulnerable of emerging markets as Fed rate hikes reduce demand for their assets, according to economists. Turkey’s inflation rate is 12.2 percent and its current account deficit widened to 6.5 percent of GDP in April.

The government says it is strongly committed to implementing policies to slow inflation and reduce the current account gap should it win the elections. A succession of elections, an attempted military coup in July 2016 and a public refererendum on increased powers for the president in April last year have delayed economic reforms. Turkey is due to hold local elections in March next year and some commentators have speculated that this month's elections may be re-run should Erdoğan's party fail to secure a parliamentary majority.