Turkish President Recep Tayyip Erdogan said he’s giving his new economic team more leeway in altering policy, a concession that at least briefly opens the way for a shift from years of unconventional measures that stoked an inflation crisis.
(Bloomberg) — Turkish President Recep Tayyip Erdogan said he’s giving his new economic team more leeway in altering policy, a concession that at least briefly opens the way for a shift from years of unconventional measures that stoked an inflation crisis.
The lira reversed losses for the day and Turkish bank stocks soared after Erdogan made his first public comments on monetary policy since installing Finance Minister Mehmet Simsek and central bank Governor Hafize Gaye Erkan. In remarks reported by the state Anadolu Agency among others, Erdogan signaled his backing for the two key appointees but without renouncing his preference for ultra-low interest rates.
“We have accepted our minister quickly and comfortably taking steps along with the central bank,” Erdogan told a group of reporters during a return trip from Azerbaijan on Tuesday. “This way we’ve stated our determination to lower inflation to single digits.”
The message from Erdogan is a confirmation that Turkey is likely poised to reshape the unorthodox economic policies that are blamed for an exodus of foreign investors and allowing prices to gallop out of control. Investors are watching for a big rate hike at the central bank’s next meeting on June 22.
The Turkish lira gained about 0.2% after Erdogan’s comments. Five-year credit default swaps dropped, while Turkey’s main banking stock index was up 3.4%.
Same Erdogan
At the same time, Erdogan made clear his priorities remain unchanged even as — for now — he may allow more flexibility. Contrary to empirical evidence and mainstream theory, the Turkish president believes that cheaper money leads to slower inflation.
“People shouldn’t be under the misconception that the president is moving toward a serious change in interest-rate policies,” he said. “I’m the same.”
Since elections on May 28, which gave Erdogan another five years in office, the Turkish leader has revamped the cabinet after a cost-of-living crisis and declines in the lira to record lows. The appointment of Erkan last week followed days after ex-Merrill Lynch strategist Mehmet Simsek became treasury and finance minister.
Simsek, who was both a finance minister and deputy prime minister in past Erdogan cabinets, has vowed to implement “rational” policies. On Friday, he’s due to meet bankers and separately plans to discuss economic challenges at a closed-door event with Turkey’s top business association Tusiad.
Erkan, Turkey’s first female central bank governor, worked for nearly a decade at Goldman Sachs Group Inc. before spending almost eight years at failed US regional lender First Republic Bank.
“I didn’t know her,” Erdogan said. “We thought we should have a female chief at the central bank and took this step.”
Erkan’s predecessor Sahap Kavcioglu, never once raised rates throughout his tenure despite inflation approaching 86% last year. Kavcioglu, now appointed to head the banking regulator, was Erdogan’s ally in arguing that lower borrowing costs can reduce inflation.
(Updates with markets, Simsek’s meeting starting in third paragraph.)
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