ISTANBUL: Turkish President Tayyip Erdogan said on Friday that the central bank’s decision a day earlier to sharply cut interest rates was “vital” and added that the policy easing needs to continue at a gradual pace toward year end.
On Thursday the central bank cut its benchmark rate to 19.75% from 24%, more than expected. The move came less than three weeks after Erdogan abruptly sacked the bank’s chief and replaced him with a deputy in a move that alarmed investors.
Speaking to provincial heads of his AK Party on Friday, Erdogan said high interest rates are the biggest obstacle to the Turkish economy, which tipped into recession after last year’s currency crisis.
“I’ve always expressed my discomfort over this (high interest rates) for years. Unfortunately, we could not convey this to central bank governors of those times,” he said, adding the governors had used “stalling tactics”.
Following the sacking of former Governor Murat Cetinkaya, Erdogan said the decision was taken because he did not follow instructions regarding monetary policy.
The sacking has also led to renewed concerns about the central bank’s independence under Erdogan, who has frequently describes interest rates as “evil”. Similar concerns contributed to a sell-off in the lira, which lost neraly 30% last year in a full-blown currency crisis.
Inflation, which hit a 16-year high in the wake of the crisis, declined to just below 16% in June, opening the door for the central bank to start easing for the first time in more than four years.
Erdogan repeated on Friday his unorthodox view that inflation will come down as interest rates are lowered, adding that he expects stronger economic recovery in the second half of the year.