Erdogan to Turkey’s Central Bank: Nice Rate Cut, Do More Pleaseby and
President says lower rates needed to get credit to business
‘I don’t care,’ if credit companies cut their rating: Erdogan
Turkey’s central bank did the right thing by cutting interest rates this week and it should continue to do so, President Recep Tayyip Erdogan said.
“I believe it will be beneficial to continue this steadily,’’ Erdogan said in an interview Thursday in New York, hours after policy makers cut their overnight lending rate for a seventh straight month.
The president described the move as “careful and balanced,’’ and said the country’s commercial lenders should absorb the message and lower their own borrowing costs. That’s the best way to make credit available to entrepreneurs, extend Turkey’s seven-year streak of uninterrupted economic growth and slow inflation, Erdogan said.
The Turkish leader, who’s been running the country for almost 14 years, has strong and unorthodox views on the benefits of lower interest rates. He’s frequently clashed with central bankers who take the more conventional line that rates must sometimes be kept high to rein in inflation. That’s also the view of most economists and investors, who typically argue that politicians should leave central bankers to do their job in peace.
The new governor of Turkey’s central bank, Murat Cetinkaya, has delivered an Erdogan-friendly rate reduction at every meeting since he took the post in April, and his most recent one on Thursday took the overnight lending rate to 8.25 percent. Turkey’s stocks, bonds and currency all gained on the move, even though it came against a backdrop of inflation that’s above 8 percent and only slightly down from its year-ago level.
In the interview, Erdogan reiterated his belief that high interest rates cause inflation, instead of curing it, and he said they also deny a middle-income country like Turkey the investment it needs to take its $720 billion economy forward.
“You can only talk about development in a country where there’s investment,’’ he said. “But when interest rates are high, it’s not possible to invest.’’
Erdogan cited the low or negative borrowing costs in some of the world’s wealthiest nations: “I say let’s look at America as an example, Europe, Japan, and, accordingly, let’s bring interest rates as low as possible.’’
The Turkish economy has outperformed the countries Erdogan cited, growing at an average pace of more than 4 percent in the 12 months through June. Economists have warned that the headline figures mask weaknesses, including one of the world’s largest current-account gaps, and that government efforts to encourage more borrowing could worsen the problem.
The day before the central bank’s rate cut, the government announced steps to give consumers more time to pay off debt, including credit-card purchases. The measures will spur growth but they’ll also have a negative impact on the external deficit and on inflation, deputy premier Mehmet Simsek said.
The president said the bank can do better, but he also stressed the resilience that Turkey’s business world and financial markets have displayed since the failed coup against his leadership in July. The putsch, which Erdogan blames on followers of a U.S.-based Islamic preacher, was put down after a night of aerial bombardment and street battles that left more than 200 people dead. It triggered a week-long slide in the lira, which lost more than 6 percent.
The currency has since recovered most of those losses. “Our hope is’’ that it will extend recent gains, Erdogan said. “It’s not at the desired level. But those who were expecting it to crash, they didn’t get the result they wanted.’’
Erdogan touched on other economic issues during the course of a 35-minute conversation. He defended his record, as president and prime minister, of delivering consistent economic growth and bringing inflation down from about four times its current level. He pointed out that Turkey no longer owes anything to the International Monetary Fund.
And he poured scorn on the credit-rating companies which he said refuse to give Turkey its due for political reasons, while promoting other countries with inferior track records. “They’re making mistakes, and they’re doing it intentionally,’’ he said.
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S&P Global Ratings has already cut Turkey’s debt to junk and Moody’s Investor Service Ltd has signaled it may follow suit. Erdogan was asked how he’d feel if it did.
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“I don’t care at all,’’ he said.