Erdoğan signals rate cuts, sweeping cabinet changes
Turkish President Recep Tayyip Erdoğan said he will seek to emulate the United States and economies in Europe by cutting interest rates to below inflation to stimulate investment.
Speaking to Bloomberg, Erdoğan said those economies set “open, clear examples” for Turkey and the country’s finance sector such rebalance itself accordingly.
“To put it very clearly, this is our target at the moment,” Erdoğan said in an interview in Bloomberg’s studios in London late on Monday. “The examples are in front of us. There is no need to look left, to look right and to rediscover the world.”
Turkey’s lira sank to a record low after Erdoğan spoke, trading as weak as 4.39 per dollar on Tuesday. Ratings agencies have expressed concern about the increased power Erdoğan is taking over economic decision-making and his stimulus measures to boost growth, which they say could provoke a hard landing for the economy.
Erdoğan cited “a very serious development” in Argentina, where interest rates are 14.4 percentage points above inflation. He said real interest rates, or the difference between interest and inflation, were also higher in Russia, Brazil and South Africa than in Turkey.
When “you catch this” idea, you take interest rates down “in a substantial sense,” he said.
The central bank, autonomous according to Turkish law but under political pressure, has refrained from increasing interest rates as much as economists have called for, raising more concern over the country’s economic stability. Inflation in Turkey is 10.9 percent, more than three times the average in emerging markets, and the current account deficit, widened by imports, now exceeds more than 6 percent of 2017 economic output.
The moment we take it (the interest rate) down to a low level, what will happen to the cost inputs? That too will go down," he said. "Well! As soon as the cost input goes down, you either domestically or in the international markets, you will be able to get the opportunity to sell your products at much lower prices and obtain competitiveness.
“The matter is as simple as this.”
Erdoğan said he would take more control over economic and monetary policy after elections in June, saying the current system of government allowed the prime minister a significant role. Erdoğan has called snap elections, citing economic factors and the war in Syria, and is due to preside over a full presidential system of government that was narrowly approved in a nationwide referendum last year marred by accusations of vote-rigging.
Asked whether he would keep the services of Deputy Prime Minister Mehmet Şimşek, an ex-Merrill Lynch economist and a favourite with investors, following the election, Erdoğan said the new political system would allow him to appoint unelected people to his cabinet.
“If you look at the U.S., as is known, you can see that those in parliament do not take part in the cabinet,” he said. “Therefore, we too may form a cabinet with those not from within the parliament, but from outside the parliament.”