Turkish central bank meeting closely watched

Economists say the normally innocuous general assembly has taken on greater significance this year after Erdogan called two weeks ago for an emergency interest rate cut to boost the economy

Turkish central bank meeting closely watched

World Bulletin/News Desk

An annual meeting of Turkey's central bank on Thursday will be closely watched for signs that Prime Minister Tayyip Erdogan's government, strongly opposed to high interest rates, is trying to boost its influence over monetary policy.

Economists say the normally innocuous general assembly, at which executives and technocrats are elected and reshuffled, has taken on greater significance this year after Erdogan called two weeks ago for an emergency interest rate cut to boost the economy.

Governor Erdem Basci, speaking three days later, hinted at the possibility of rate cuts for the first time in a year and the bank has effectively already started loosening by the back door, lowering borrowing costs by providing more liquidity through its regular repo auctions.

Erdogan has been a vocal critic of high rates, eager to defend his reputation for overseeing a decade of strong growth, particularly as Turks go to the polls in a presidential election in August in which he is widely expected to stand.

"The general assembly will be a milestone. Appointments made here will tell us the extent of the interference with the central bank," one banking sector analyst said, declining to give his name because of the sensitivity of the issue.

The central bank - which, along with the government, says its monetary policy committee alone decides on interest rates - declined to comment.

"It's obvious the prime minister is disturbed by the bank's interest rate policy," said another Istanbul-based economist.

"The appointment of members close to the government to the bank's assembly may make its decision making and operations more difficult," he said.

The central bank stunned markets with a massive rate hike at the end of January, ignoring political pressure - Erdogan had spoken against such a move just hours earlier - as it battled to defend the lira after it slumped to record lows.

The move restored its credibility in the eyes of some investors, after months in which it had tried to support the lira by burning through forex reserves and tightening liquidity on the margins while avoiding outright rate hikes.

Last Mod: 16 Nisan 2014, 11:49
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