Turkey’s central bank expected to hike rates amid political pressure
Turkey’s central bank will announce its monetary policy decision at 1100 GMT today, with some analysts expecting rates to be cut by a massive 250 basis points in a bid to stimulate economic activity.
The economy needs a boost after being afflicted by recession in the last few quarters. High inflation, reduced demand for Turkish exports and increasing credit costs for its businesses are seen as the reasons.
President Recep Tayyip Erdogan is keen to restore confidence in himself and the Justice and Development Party (AKP), which he continues to have significant influence over despite officially cutting ties. The Party lost local elections in Turkey’s two largest cities of Ankara and Istanbul in March for the first time in 25 years. The loss has largely been attributed to the dire state of the economy.
Central Bank Governor Murat Cetinkaya was fired on July 6 by Mr Erdogan, though no official reason was given.
Economists and investors are increasingly concerned about Mr Erdogan’s tendency to interfere with monetary policy, which is supposed to be independent of political pressure. The blow to the central bank’s institutional structure, capacity and independence does not inspire confidence in the country’s economy. The correct political choice for Erdogan is to accept slower growth rates in the short term to allow economic rebalancing, but political desperation accompanied by poor policies and low savings rates will result in further investment declines.
Wake up smarter with an assessment of the stories that will make headlines in the next 24 hours. Download The Daily Brief.