Turkish Deputy PM Babacan calm amid economic fluctuations

Turkish Deputy PM Babacan calm amid economic fluctuations

ANKARA - Anadolu Agency
Turkish Deputy PM Babacan calm amid economic fluctuations

‘They [Turkish institutions] all do what is required without any hesitation or fear,’ Deputy Prime Minister Ali Babacan said on Aug 28, speaking at an opening ceremony in the capital Ankara. AA photo

The currency rate is no longer an indicator of the general outlook for the Turkish economy, Deputy Prime Minister Ali Babacan has said, adding that all related government institutions are closely watching market developments, ready to act if needed. 

“All of our related institutions, from our Central Bank to our Treasury, and our banking and finance authorities, follow the latest developments closely under the leadership of our Prime Minister Recep Tayyip Erdoğan and in the surveillance of our ministers. They all do what it requires without any hesitation or fear,” he noted. 

He said Turkey was not a "closed economy." “If there is a storm abroad, we’ll also feel the storm and the waves. Such storms could however not harm a strong and healthy economy which is governed by capable teams, like the Turkish economy. I hope we’ll overcome the latest fluctuating period by standing all together,” he said. 

Babacan’s comments on the latest fluctuations in the global markets, but mainly in the emerging markets, including Turkey, were being queried by many analysts. Emerging markets have been in freefall this week following the release of the Federal Reserve’s (FED) minutes indicating that its stimulus could soon be withdrawn, and the high prospects of a military intervention in Syria. Although there has been a widespread downturn, the Turkish market has been one of the worst performers of all.

The Turkish Lira fell to 2.07 to the dollar in initial trading on Aug 28, and then rallied to around 2.03 yesterday, mainly due to the news signaling a delay in the expected intervention in Syria. The main Istanbul share index had decreased by around five points in the last week, but increased slightly yesterday to around 2.2 percent. 

Babacan relies on strong banking sector, budget 

“Global markets have now finally been normalized and tried to adapt to the quite possible end of the very highly liquidity party. All assets from company stocks to bonds face re-pricing and all economies are affected by this adaptation period, but some are more so. Every country needs to be cautious according to its own dynamics,” Babacan said. 

In the meantime, the Central Bank is binding itself to a “no interest rate hiking” policy until the end of the year, according to economic analysts, who are concerned that current fluctuations may be permanent rather than just temporary, as the bank seems to think.

The bank has been tightening monetary conditions through an unorthodox mix of repo auctions and changes in its interest-rate corridor, its guide on managing liquidity, but has left its main benchmark rate – the one-week repo rate – unchanged at 4.5 percent.

He noted that Turkey’s banking sector was in a good position, the budget was in balance and the currency rate was no longer an indicator for the general outlook of the Turkish economy. 

“The most dangerous situation for a country right now is to have both a budget and current account deficit. We have a current account deficit problem, but this won’t be a big problem in the future thanks to the positive indicators of the Turkish economy. And very fortunately we have a strong budget. Our budget deficit is very tiny,” Babacan said, adding that Turkey would never stop opening its economy abroad and making structural reforms. 

The Turkish government plans to make 417 billion liras of fixed investment in the next five years. “Turkey needs to focus on those big investments,” Babacan noted.