Turkish central bank Governor Erdem Basci ruled out an immediate interest-rate cut, saying he preferred taking “measured steps” even after Prime Minister Recep Tayyip Erdogan urged him to lower rates soon.
Basci said the central bank doesn’t need to hold an “extraordinary meeting at the moment,” to reduce borrowing costs as demanded by Erdogan. The premier, known for opposing high interest rates, said April 4 that local elections last month have reduced political risks in the country.
The Monetary Policy Committee will decide if there is a need for a “measured step,” Basci said in the Anatolian city of Kayseri today. “One shouldn’t expect too big a rate decline,” he said. The next MPC meeting is set for April 24.
Erdogan’s comments last week renewed speculation among economists that the government was pressuring Basci to cut rates and stimulate growth as the ruling party prepares for presidential and general elections this year and next.
While Basci ruled out an immediate response to Erdogan’s demand, his comments suggest the central bank is moving toward looser monetary policy, days after he signaled in London he was in no hurry to cut rates, according to Capital Economics.
“Moving toward monetary easing is a bit premature,” William Jackson, emerging markets economist at Capital Economics in London, said by phone today. The increase in capital inflows after Erdogan’s ruling party won the March 30 local elections could be short-lived amid risks that political tension may flare up again, he said.
The lira and Turkish bonds rallied following Basci’s emergency Jan. 28 decision to increase rates, largely silencing criticism from cabinet ministers who were lobbying for looser monetary policy. The currency weakened 0.3 percent to 2.1198 per dollar at 3:17 p.m. in Istanbul.
Basci said today he prefers a “step-by-step” normalization of rates. Short-term interest rates could be lowered through the bank’s liquidity tools if necessary, he said.
The governor also said early data suggests Turkey’s economy will expand about 4 percent this year, supported by an increase in exports due to Europe’s recovery. The average estimate of economists in a Bloomberg survey last month was 2.2 percent.
Basci said the central bank’s forecast assumes better growth in domestic demand than economists’ estimates even after the increase in interest rates.