Turkey’s Finance Minister Mehmet Simsek defended the independence of the central bank, which came under further pressure today from Economy Minister Nihat Zeybekci to lower interest rates.
Simsek’s defense on national television came moments after Zeybekci said the bank should lead the “market trend for lower rates and not follow it.” Zeybekci contended that Prime Minister Recep Tayyip Erdogan’s criticism of monetary policy doesn’t amount to pressure and said the government wasn’t considering amending the law governing the central bank.
“The independence of the central bank has been one of Turkey’s greatest achievements in recent years,” Simsek said. “We should maintain fiscal discipline and keep up reforms to strengthen the central bank’s ability to combat inflation. The central bank, meanwhile, should pay attention to activities that would keep keep domestic demand under control.”
Erdogan accused the central bank yesterday of mocking the nation by cutting its benchmark interest rate by 50 basis points to 9.5 percent last week, after more than doubling it to 10 percent in January. Shortly after the emergency rate rise in January, Erdogan said he would give the decision time to work; he’s been escalating his attack on the bank since early April.
“Interest rates in Turkey are much higher than necessary,” Zeybekci said, adding that inflation was the result of high interest rates and that the impact of the lira’s depreciation on inflation ended in May. “Current rates don’t support growth and risk an overvalued lira.”
The lira continued to fall today in its fourth consecutive day of losses, trading 0.2 percent lower at 2.1068 per dollar at 12:30 p.m. today.