Turkish central bank hints of further rate cut
The governor of Turkey`s central bank hinted Monday that another small cut in interest rates is likely at the end of the month, deflecting calls by the government for quicker action.
Istanbul: The governor of Turkey`s central bank hinted Monday that another small cut in interest rates is likely at the end of the month, deflecting calls by the government for quicker action.
"A measured, moderate and gradual rate cut is being priced in," Erdem Basci said in a speech in the central city of Konya.
"We will do it as long as the Central Bank continues to believe that inflation will decrease. But we will do it with caution, without upsetting the balances, without destabilising," he said.
Last month the central bank, which had ramped up rates to fight a currency crisis, shaved one key rate but was criticised for being timid by Prime Minister Recep Tayyip Erdogan.
Erdogan`s public comments touched of renewed concern about the independence of the central bank.
Markets value an independent central bank as a better guarantor against inflation, which erodes the value of investments in government bonds as well as the value of a currency, compared to governments that are often focused on growth.
The May rate cut came after the bank aggressively raised key rates in January in a bid to halt a steep drop in Turkey`s currency, the lira, which lost nearly a third of its value in two months.
"We also don`t want high interest rates, but this is a policy tool for us," said Basci.
Erdogan has been concerned not to lose one of his key achievements: the stellar economic growth that Turkey has posted since his Islamic-rooted Justice and Development Party (AKP) came to power 10 years ago.
The Turkish premier is tipped to run for presidency, which is currently a largely ceremonial post, in August.
While Turkey`s growth has slowed from nearly 9.0 percent in 2010 to 4 percent last year, the economy doesn`t appear to have stalled from the interest rate hike. It grew at an annual rate of 4.3 percent in the first quarter of this year.