Turkey Says it Completed Simplification of Monetary Policy

Turkey Says it Completed Simplification of Monetary Policy

Wednesday, 13 June, 2018 - 11:30
Turkish Lira (Reuters)
Ankara - Saiid Abdulrazzak
The Turkish government announced it has completed the necessary procedures to simplify its monetary policy and curb the collapse of the Turkish lira against foreign currencies.

This came after the Turkish lira lost up to 21 percent of its value against the dollar since the beginning of 2018, due to concerns of investors and international institutions from the control of President Recep Tayyip Erdogan over monetary policy of the country following the early parliamentary and presidential elections on June 24.

Erdogan has earlier threatened to hit the independence of the central bank and limit its ability to make decisions.

“The government has completed a normalization and simplification of the country's four interest rates,” Deputy Prime Minister responsible for the economy Mehmet Şimşek said Tuesday in an interview.
Şimşek also revealed that Turkey has withdrawn all of its gold holding from the US Federal Reserve.

In the end of last month, the Central Bank of the Republic of Turkey (CBRT) announced its intention to complete the simplification process for the operational framework of its monetary policy after two years of work amid falling Turkish lira.

The central bank ramped up its benchmark interest rate to 17.75 percent on Thursday, taking another step to assert its independence, two weeks after an emergency rate hike and just ahead of elections.

The currency initially rallied some two percent against the dollar after the 125 basis-point increase.

Bond yields fell and stocks advanced. The bank has now raised rates by 4.25 percentage points since late May, when it announced a dramatic three percentage-point increase at an emergency meeting to stem the rout in the lira.

Erdogan, a self-proclaimed “enemy of interest rates”, has stepped up pressure on the central bank before the presidential and parliamentary polls. He wants to see lower borrowing costs to spur credit growth and construction.

Meanwhile, investors cast concern that the Turkish government has not taken enough action to tackle inflation amid signs of a deterioration of the economy.

The inflation rate rose a new high in May to 12.15 percent compared to the same month last year while inflation reached 10.85 percent in April.

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