Turkey moves to reassure on central bank independence

Turkey’s Central Bank headquarters is seen in Ankara. President Tayyip Erdogan has been a frequent critic of the central bank’s high interest rates. But one of the officials said that while central bank decisions are sometimes criticised, nobody is seeking to control the bank or change its structure. ReutersAnkara/IstanbulThe Turkish government has no intention of curbing the independence of the central bank, officials said yesterday, after the lira hit a two-week low on concerns about the new administration’s plans. Fresh from an election win, Prime Minister Ahmet Davutoglu on Wednesday announced his ruling AK Party’s platform in parliament, saying the central bank would continue to determine monetary policy tools directly as the basis for securing price stability. But investors homed in on the absence of a line that had been in the previous government programme saying the bank would set monetary policy independently. The lira rapidly weakened beyond 2.9 against the dollar, hitting its weakest point since November 11. Deputy Prime Minister Mehmet Simsek, the newly appointed economy chief, took to Twitter early yesterday to offer reassurance and say that “speculation” about central bank independence “does not reflect the truth”. “The central bank’s fundamental duty is to achieve price stability. It will continue to determine monetary policy instruments independently,” he said, adding that the comments in the government programme were in line with the central bank law. Government officials reinforced the message in comments to Reuters, saying there was no intention of reining in the bank’s independence. Dealers said the comments from Simsek and the officials eased concerns and curbed lira losses. But the currency came under fresh pressure in the afternoon, nearing 2.91 to the dollar. President Tayyip Erdogan has been a frequent critic of the central bank’s high interest rates. But one of the officials said that while central bank decisions are sometimes criticised, nobody is seeking to control the bank or change its structure. “There is no plan or thought whatsoever to limit the independence of the central bank or to interfere in its structure,” a second official said. The market concerns presented an early challenge to Simsek in his new role as economy czar, a position that was for years held by well-respected Ali Babacan, whose absence from the new government also unsettled some investors. The appointment of Simsek, a respected former finance minister and banker, had offered some reassurance to investors concerned that the new cabinet was stacked with allies of Erdogan. Both Babacan and Simsek were regarded as a counterweight to Erdogan, whose criticism of tight monetary policy had stoked fears about the central bank’s capacity for independent action. The central bank left interest rates unchanged on Tuesday, opting to sit tight at its first meeting since the November 1 election as it waits for an expected tightening by the US Federal Reserve before following suit. Despite the reassurances, analysts highlighted the prospect of a new central bank governor being appointed when Erdem Basci’s term expires in April. Other changes in the monetary policy committee are due in the following months. “People close to the government’s policies may be appointed,” said Finansbank chief economist Inan Demir. “Hence in the coming period the concern and pressure in the market concerning independence will continue.” “It is beneficial and important that government officials make such verbal interventions and answer criticisms. But the fact that government officials are constantly having to defend themselves shows the market concern,” he added. One banker, who declined to be named, said there were different views in government on the independence issue. “There are different opinions in government about TCMB (central bank) independence. We will watch and see which of those prevails in the new government,” he said. “Will the fight with inflation be at the forefront or will there be more expansionary policies?”