Turkey’s central bank is independent of government and will take all necessary steps to combat inflation, Finance Minister Berat Albayrak said, defending an institution that has not raised its benchmark rate in nearly three months despite a currency crisis.
Albayrak also said he did not expect any problems in the banking sector, in stark contrast to recent warnings from ratings agencies that the lira sell-off could weaken lenders’ assets. In the event of a problem at banks, Ankara would be willing to step in with support, he said.
The lira has fallen some 40 per cent against the dollar so far this year, hit by concerns about President Tayyip Erdogan’s control over monetary policy and a worsening diplomatic rift with the United States.
Economists say the central bank needs to hike rates decisively to rein in double-digit inflation and support the currency. Erdogan, a self-described “enemy of interest rates”, wants low rates to keep a credit-fuelled growth boom going.
“The central bank in Turkey has been maybe more independent than those in other countries,” Albayrak, Erdogan’s son-in-law, said in an interview at an ornate, 19th century Ottoman palace overlooking the Bosphorus in Istanbul. The bank will take steps “to continue this independence,” he said.
Turkey has reached a point where it requires a “full-fledged fight against inflation,” Albayrak said.
Investors have been unswayed by similar language in recent weeks. The central bank on Monday signalled that the worsening outlook for inflation was becoming a bigger risk, saying its monetary stance would be adjusted at its next meeting on September 13.
“Recent developments regarding the inflation outlook indicate significant risks to price stability,” it said after data showed inflation hit its highest level last month in nearly a decade and a half, at 17.9 per cent.
“The central bank will take the necessary actions to support price stability,” the bank said.
At its last meeting in July, the central bank left rates on hold, confounding market expectations and sending the lira sharply weaker.
Albayrak’s appointment two months ago as treasury and finance minister has cemented the perception that the economy and monetary policy are now fully under Erdogan’s control.
Albayrak was visiting London on Monday for talks with Britain’s Finance Minister Philip Hammond, part of Turkey’s efforts to strengthen relations with Europe’s main economic powers as a dispute with Washington shows no sign of easing. He was in Paris last week and will go to Germany next week.
Relations with the United States, a Nato ally and major trading partner, have soured over a series of issues including Turkey’s detention of an American Christian pastor on terrorism charges and the US sentencing of an executive from Turkish state bank Halkbank (HALKB.IS) for busting sanctions on Iran. — Reuters
Orhan Coskun, Dominic Evans