Turkish PM says he will wait to see rate hike’s impact before stepping in

Turkish PM says he will wait to see rate hike’s impact before stepping in

Deniz ZEYREK ANKARA - Hürriyet
Turkish PM says he will wait to see rate hike’s impact before stepping in

Prime Minister Erdoğan returned to Ankara from an official visit to Iran on Jan. 29.

Prime Minister Recep Tayyip Erdoğan has said the government will wait to see the results of the Central Bank’s rate hike move, claiming that there are “alternative plans” if the rise fails to stem the Turkish Lira’s recent losses.

“It falls to me to be patient for a while,” Erdoğan said on Jan. 29, answering reporters’ questions about the massive interest rate hike that the Central Bank announced at midnight on Jan. 28.

Concerned about the potential impact on growth, the prime minister has been vocal in his opposition to any interest rate hike recently, raising questions about the independence of the Bank, which has refrained from raising rates despite the steep slide of the Turkish currency.

Repeating that he has always opposed raising interest rates, Erdoğan said his government would wait to see where the things are going before stepping in.

“We are obliged to preserve our good will if the return of interest rates brings a positive improvement in foreign exchange currencies or a rise in the Istanbul stock exchange. But we won’t be able to preserve our good will if the opposite happens,” he said.

When asked whether the government had any “plan B” regarding the issue, Erdoğan was coy. “Regarding plans such as B or C, we may have a study that we will announce within the upcoming weeks,” he said, without giving any further information about the scope and details of such plans.

Responding to a reporter’s question as to whether this would be in the form of an “economy package,” Erdoğan only said he wanted it to be “something out of the ordinary.” 

“There are examples in the world, but it wouldn’t be right for us to announce these in this period, when the Central Bank had taken this step,” he stated.

Meanwhile, a senior government official speaking to Reuters following prime minister’s statements said Turkey is not considering any sort of capital controls. 

"We are not working on capital controls and it is not on the table," the official told Reuters Jan. 30.

The Central Bank raised all its key interest rates in dramatic fashion at an emergency policy meeting late on Jan. 28, ignoring government opposition as it battled to defend the crumbling lira currency. 

Despite declaring that he is willing to see the consequences of the Central Bank’s steps, the prime minister again repeated his view that raising interest rates was not the only available tool.

“I believe inflation and interest rates are directly proportional, not inversely. Therefore, interest rates are the cause and inflation is the result,” he said.

The rate hike is expected to have an impact on inflation, but many analysts argue that the further weakening of lira could harm price developments. 

The increase also raised the prospect of Turkey missing its four percent growth target this year, something that Erdoğan has been keen to avoid with an election cycle starting in two months. 

However, the prime minister sought to refute claims of political interference in the Bank’s decisions.

“I should say that the Central Bank is obviously an independent institution. We have long said that we don’t interfere in this and we don’t have any direct connection. But unfortunately some always write in their columns that we are pressuring,” Erdoğan said.