Central Bank of Turkey Governor Erdem Başçı has stated the country’s economical development needs to rest well below the mouthwatering levels which were recorded in 2010-11 for this and the following year to reduce the risks against possible external shocks and to keep a robust outlook for the nation’s wellbeing in the long-run.
“OK, let’s immediately get rid of our seatbelts and also accumulate our luggage then again carry on with land transportation,” he told, speaking to reporters in Ankara on Saturday, with respect to a successful soft landing the Turkish economy has accomplished, yet advising a cautionary position for a little longer. Also backed up by Economy Minister Zafer Çağlayan, exporters, all the same, are not so happy with the idea since it proposes the bank will hesitate to bring down rates of interest for an broadened period to take care of price stableness at the detriment of their price advantage in international markets. Lower rates would signify depreciation of the local currency against major currencies and would therefore make Turkish products cheaper for foreign clients. Nonetheless, they also carry the potential to throw fuel on consumer inflation and the current account shortage (CAD), derailing the country from the route of sustainable economic development it looks to have landed on with success.
Başçı’s policies — that came at odds with a part of the government represented by Çağlayan — have received more support from academic circles, whereas business people were broadly longing for an immediate shift to a pro-growth policy even if that would signify higher rising prices and CAD for the country.
For Turkish Economic Association (TEK) President Ercan Uygur, criticism addressed at the central bank if it doesn’t bring down the interest rates sooner rather than later represents a oversimplified approach. “OK, let’s say the rates are cut. Then what? The CAD might arise again. We already have seen crude prices soar [in the past 2 months],” he stated. “The rates of interest are not the only tool [to buttress economic activity],” he added up.
Başçı’s bank has, indeed, made good use of its rate of interest corridor to supply liquidity to the banks at different costs based on the essential of the time and was successful in creating a sense of “uncertainty” filled with anticipations the markets dearly need. “We must understand that today’s central bank has a task harder than it used to have when its only task was to ascertain price stableness in the country. Now, it’s trying to take care of both price stableness and financial stableness while also feeling responsible about economic growth. This isn’t easy,” Uygur told, emphasising that the bank deserves more recognition for its efforts. “Here, a picture of disagreement between the government and the bank should certainly be avoided [to avoid eroding Turkish economic policies’ credibleness in the international stage],” Uygur, who also teaches at Ankara University, said.
The bank took a decision against altering its benchmark rate of interest on Aug. 16 — in spite of increasing pressure from Minister Çağlayan — keeping its one-week repo rate stable at 5.75 percent.
Çağlayan, also a former chairman of the Ankara Chamber of Industry (ASO), has already earned himself a name in economical circles for his over-emphasis on encouraging exports to the detriment of cost stability. As the state minister for foreign trade in the previous government, he was very much at odds with the previous central bank governor, Durmuş Yılmaz, because the bank, according to him, rested indifferent to the plight of exporters — that is, a loss of cost advantage in international markets because of an “overestimated” national currency. “It [the central bank] is independent, but how far does this independence go?” is one remark he made during a meeting in September 2010 in Bursa. “The central bank does not have the right or the luxury to be independent from the economy, employment, production and exports,” he went on to say at that meeting. “This is all happening because of the groups the policy makers represent. Çağlayan may be more of a representative of exporters,” Uygur said.
