ISTANBUL (CIHAN)- As an ongoing political dispute regarding the central bank's interest rate policy creeps over into the bank's credibility as an independent monetary policymaker, different voices from the Cabinet have signaled a split in opinions over the issue.
Prime Minister Recep Tayyip Erdogan resumed his harsh criticism of the central bank's policies on Tuesday, saying the central bank's surprise interest rate cut last week, which followed a huge rate hike in late January, did not go far enough. The comments from Erdogan and other government officials have already added to concerns about government interference in monetary policy. Apparently, some key Cabinet members responsible for the economic agenda are not happy with this and have separately raised their voices.
On Tuesday, Deputy Prime Minister
Babacan was joined by Finance Minister Mehmet Simsek, who said on Wednesday that he "completely agrees with
Simsek defended the central bank's efforts to tame rising prices. The finance minister stressed that the central bank's credibility is vital to
ZeybekÇi, on the other hand, said he "understands why Erdogan is worried about the central bank's policies."
"We think interest rates are high, higher than the levels they should be at," ZeybekÇi said, adding to recent government criticism of the central bank. "Markets are pushing market interest rates down. … The central bank should lead the market trend, not follow the market from behind," ZeybekÇi said, arguing that high borrowing costs were contributing to rising inflation.
Erdogan and ZeybekÇi's view that high interest rates lead to inflation are contrary to the opinion of most economists, who argue that
"The [Justice and
The political noise over interest rates has undermined confidence in the central bank and added to pressure on the lira, which slipped to 2.104 against the dollar by Wednesday afternoon 2.0979 late on Tuesday.
Last week the central bank cut interest rates for the first time in more than a year, unwinding some of January's huge rate hike aimed at halting a dramatic slide in the lira amid an emerging market sell-off. Erdogan, who has dominated politics for more than a decade and overseen a period of unprecedented growth, is keen to maintain his record on the economy ahead of an expected run in the country's first direct presidential election in August.
"The question … is whether commentary from Erdogan and some of his ministers is just meant for domestic consumption … and driven by the electoral calendar, or the sub plot is to actually pressure the central bank to cut rates," Ash said.
ZeybekÇi stressed on Wednesday that the government is not going to introduce a new law to change the role of the central bank amid rumors that Erdogan, who is not happy with the central bank managers, wants to tighten his political grip on the bank. Erdogan said on Tuesday the government would "do what was necessary when the current central bank administration's tenure is over."
Governor Erdem BasÇi's tenure will end in 2016. BasÇi, who kept a low profile and did not get into an open quarrel with Erdogan, said last week the interest rates in
Meanwhile, Simsek also said inflation was likely to peak this month, reinforcing expectations that the bank could again lower rates. But he also forecast inflation would top out this month, boosting expectations that the central bank might loosen policy again at its rate-setting meeting in June, which could leave
"We have always viewed appropriately high interest rates (c.10 percent) as the necessary and sufficient condition for
(Cihan/Today's Zaman) CIHAN
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