Erdoğan takes aim at Central Bank independence, says Bank is on ‘wrong path’
President Recep Tayyip Erdoğan has blasted Turkey’s Central Bank, saying it is “on the wrong path” and claiming that a lack of government intervention in monetary policy has saddled Turkey with high inflation and a slowdown in investment.
“They are saying that central banks have an independence; they told us not to intervene. It came to this point because we haven’t [intervened],” Erdoğan said in a meeting with ruling Justice and Development Party’s (AKP) local heads in Ankara on Nov. 17.
Declaring his opposition to the Central Bank’s interest rate corridor policy, Erdoğan once more reiterated his view that interest rates cause inflation, despite lira, languishes low against U.S. dollar.
“This will not work this way, we will solve it out. We cannot make it a taboo. It has been insisted for 15 years. We have decreased the interest rates, and inflation has fallen to one digit. Now, the rates have been raising, the inflation has raised to double digits,” Erdoğan said
“The Central Bank says it will be such and such as of the end of the year. What happened? How many times you have revised, none of the things that you have said came up right. You are on the wrong path,” he added.
The Turkish Lira weakened to 3.9 against the U.S. dollar following Erdoğan’s comments before easing slightly to 3.8925 in the afternoon.
Erdoğan has long been contesting the interest rates to keep credit costs down to boost investments, while Central Bank uses a “corridor” to adjust monetary policy, facing opposition from Erdoğan.
“In my opinion, the rate is the cause, inflation is the effect. Those who do not understand me on this sooner or later will understand. Inflation does not stem from cucumbers or plants, the main reason that raises inflation is the rate,” he said.
He argued that Turkey faces an international intervention on its economy, saying that none of the problems that the country experiences “are emerged within the natural flow of the economy.”
“I believe that the bubble in the foreign currency which has no rational basis will soon disappear and exchange will soon get back to its normal rate,” he said adding that raising rates “will only serve for interest lobbies.”
“If you try to give credits with the rates that high, of course, the investments will not work in this country, it stagnates. That is the thing. But we still cannot explain it,” he added.
“It is obvious that somebody has pushed a button to distract Turkey,” he said, adding that, the investments are raising, and “Turkey has been growing.”“But despite that, we are in a far better position in growth rates. In the first half of the year, we have passed 5 percent. With the third quarter, the annual growth will be expected to hit a number between 6 or 7 percent or may exceed that.”
“About the investments, I know that there is a serious movement from both external and internal sources. The stock market is around 110,000, and Central Bank reserves increasing regularly,” he said.