Turkey is determined to not raise interest rates, its new finance minister said on Monday, echoing President Recep Tayyip Erdoğan’s policy that has put pressure on central bank decision-making, Bloomberg reported.
The remarks come ahead of an expected cut to rates again on Thursday, in an easing cycle that has driven the lira to record lows as inflation climbs above 20 percent.
“We won’t raise the interest rate; you will see that we can do this without raising rates,” Treasury and Finance Minister Nureddin Nebati said in a phone interview with Habertürk. He added, however, he did not know whether the central bank’s monetary easing will stop.
While Nebati is not on the central bank’s rate-setting committee, as Turkey’s most powerful economy czar, his guidance will likely reflect the monetary authority’s current approach to policy-making. He held the deputy role before assuming his new job at the ministry earlier this month. His predecessor Lütfi Elvan had opposed those rate reductions, people familiar with the matter said.
Turkey’s lira weakened past 14 per dollar for the first time on Monday in expectation of another cut. This is happening even as most central banks around the world are increasing borrowing costs to counter price growth. The lira, which was trading 3.5 percent lower against the dollar at 14.3566 as of 10:55 a.m. local time, has slumped 48 percent against the dollar this year, the worst performance among major currencies tracked by Bloomberg.
Under pressure from Erdoğan to reduce borrowing costs to boost growth, the central bank has slashed the one-week repo rate by 400 basis points since September to 15 percent, defying inflation that hovers at more than four times the targeted 5 percent.
The lira is not under attack from abroad, there’s only “a few manipulative, speculative transactions inside” the country, Nebati said.
A week before he was appointed Nebati posted a series of tweets in support of Erdoğan’s low rate policy, saying the current account deficit was the economy’s biggest problem and that rates should be cut against supply-side inflation.