Istanbul: Turkish President Recep Tayyip Erdogan signalled that he expects further monetary easing by the central bank even though he has been happy with the pace of interest cuts thus far.
“Interest rates retreated to reasonable levels with the central bank’s appropriate interventions,” Erdogan said in a speech to his ruling AK Party members on Saturday in Ankara’s Kizilcahamam. “But I believe that they will fall further,” he said.
Erdogan remains fixated on lower borrowing costs, which he believes would only curb inflation, but Governor Murat Uysal signalled that the central bank might look to moderate its pace of rate cuts after “front-loaded” monetary easing in July and September. On Uysal’s watch, the central bank has cut rates by 750 basis points, including a record move in his first month on the job. Erdogan fired his predecessor in July for not cutting rates fast enough.
Although the president’s remarks on Saturday show that he has been content with the pace of monetary easing, his suggestion to further cut the benchmark rate, which stands at 16.5 per cent, will likely be considered by Uysal. After the inflation rate dropped to single digits on Thursday, the country’s real interest rate stood at a whopping 724 basis points, among the highest in emerging markets. Economists are already suggesting that policymakers may deliver another 150-200 basis-point rate cut when they next meet on October 24.
The government predicts that inflation will end this year at 12 per cent, while the central bank’s current base-case scenario is for 13.9 per cent. The monetary policy authority may revise its forecast at the next inflation report meeting on October 31.
Erdogan also reiterated his unconventional theory about monetary policy that lower rates bring price growth down. “Some people are using this nonsense that inflation is the cause and interest rates are the outcome to trick us with a Western-style mindset,” he said.
The president’s distaste for high rates has been linked to Islamic proscriptions on usury. In his view, producers have to pass on their higher borrowing costs to customers, so they raise prices.