‘Are you kidding?’ PM Erdoğan slams Turkish Central Bank over interest rate cut

COLOGNE/ANKARA

Prime Minister Recep Tayyip Erdoğan has slammed the Central Bank’s recent slight drop in interest rates as not enough. AA Photo

Prime Minister Recep Tayyip Erdoğan has stepped up his criticism of the Central Bank’s monetary policy, slamming the Bank’s recent slight drop in interest rates as not enough.

“You raised the interest rate by 5 points all at once, but now you reduce by only half point. Are you kidding?” Erdoğan told a group of reporters in his plane while returning from a rally in the German city of Cologne.

The Bank had raised rates sharply at the end of January to combat a fall in the Turkish Lira to record lows amid an emerging markets sell-off and a corruption scandal.

As the escalating political tension ahead of the March 30 local elections and persisting global challenges keep the lira/dollar ratio at high levels, the Central Bank remained committed to tight policy, with the support of analysts and investors.

However, the partial recovery of the currency and investment environment after the elections have encouraged Prime Minister Erdoğan to again start expressing his well-known opposition to high interest rates.

Under mounting pressure from the government to bring rates down to their former levels, the Bank on May 22 trimmed the benchmark one-week repo rates to 9.5 percent from 10 percent, keeping the rate corridor steady between 8 and 12 percent, in a move that has been interpreted as keeping a foot in both camps.

“What do you intend to do by cutting half a point? ... It is not possible to find this kind of approach right,” Erdoğan said.

He also lashed out at criticism that he is thwarting the Central Bank’s independence and trustworthiness. “Why this intervention? If I am the prime minister of this country, I will express my opinion. At this point, it [the Central Bank] should clean up its act. The Central Bank is independent. The Central Bank’s independence doesn’t affect my view on interest rate. They are separate issues,” he said.

Erdoğan again stressed that he sees high interest rate as the biggest obstacle to investments in Turkey. “It’s a pity and shame. Can investment be made in a country where this is implemented? If our local capital cannot initiate investment, this is the reason why,” he said. 

The prime minister also slammed the Bank’s pledge to keep monetary policy tight until inflation is reduced to the desired levels, going against conventional wisdom by suggesting that “inflation is the outcome of high interest rates and they are directly proportional.”

Recalling that inflation is currently hovering at around 9 percent, far from the Bank’s year-end target of 7.6 percent, Erdoğan said this proved the Bank’s current policies were not working.

“The Central Bank has been saying that inflation will drop, but inflation hasn’t been on the course they pointed at. The Bank constantly revises [the inflation forecast]. This points to a truth. This means your interest rate policy is wrong,” he said.