Turkish president’s economic adviser calls for rate cut following Fed’s hike

By bne IntelliNews December 17, 2015

President Recep Tayyip Erdogan’s chief economic adviser Yigit Bulut has renewed calls on Turkey’s central bank to cut its rates following the US Federal Reserve’s decision on December 16 to raise its interest rates by 0.25 percentage points.

Turkey must reduce its interest rates as Erdogan has always suggested, Bulut said on Twitter, adding that given the positive market reaction to the FED’s hike, Turkey should seize the opportunity to cut its rates.

The central bank has said it would simplify its policies after the FED starts to normalise its policy. The Turkish central bank’s monetary policy committee is set to meet on December 22 to review interest rates. The markets have been concerned that a FED rate hike could trigger capital outflows from emerging markets, including Turkey which is dependent on external funding to finance its current account deficit.

Monetary policy stance continues to be tight for the inflation outlook, stabilising for FX liquidity and supportive for financial stability, central bank governor Erdem Basci said on December 9 when he unveiled the bank’s monetary and exchange rate policy for 2016. During the normalization of global monetary policies, the interest rate corridor will be made more symmetric around one-week repo interest rate and the width of the corridor will be narrowed, he added.

Earlier this year Erdogan’s criticism of the central bank for not slashing its rates sent the lira to record lows and raised serious questions about the bank’s independence. On December 17, the lira gained 0.75% against the dollar to trade at 2.9368, while the country’s main stock exchange Borsa Istanbul was up 0.86%. at 11 am local time.

For emerging markets, the issue is not whether the Fed raises by 25 bps or not, but whether in countries as wide ranging as Argentina, Russia, South Africa, Turkey, Ukraine, Ghana, Nigeria and Venezuela, policy makers get serious about real economic reforms, Tim Ash at Nomura International said in an emailed comment on December 17. “Turkey should be a big net beneficiary from global “normalization” process, if we saw real strong policy reform impulses now from the Erdogan/Davutoglu administration”.

Ash added that: “We would want to see a big push forward in EU accession-related political/economic reforms, peace deal with Cyprus, normalisation in relations with Israel (looking to diversify way from dependence on Russian gas to the Eastern Med) and a resumption of the Kurdish peace process. In that scenario, Turkish markets would rally hard.”


Related Articles

Erdogan says he plans talks with lenders on cutting Turkish interest rates

Turkey's President Recep Tayyip Erdogan said on October 13 that he plans to hold talks with both public and private lenders on how to lower interest rates. He did not say, however, when those ... more

Turkey's Erdogan turns fire on US ambassador in diplomatic spat over arrest

Turkish President Recep Tayyip Erdogan has turned his fire on the US ambassador to Turkey for the ... more

Turkey-based Eurasian development bank ETDB signs memo to boost return to Iran

The Central Bank of Iran (CBI) and the Turkey-based ECO Trade and Development Bank (ETDB) have signed a memorandum on strengthening bilateral ties, the CBI said on October 10. ETDB is a Eurasian ... more