Erdoğan says central bank will adhere to decisions after chief fired

Turkey’s central bank will adhere to government decisions from now on, instead of the other way round, President Recep Tayyip Erdoğan signaled after sacking the bank’s chief at the weekend for failing to lower interest rates.

Turkey will now re-shape interest rate policy and the central bank will strongly support the government’s efforts to make the economy grow, Erdoğan said in a televised speech at a business meeting in Ankara on Wednesday.

The government used to have to adhere to the central bank’s decisions on monetary policy, Erdoğan said. But now the president has new powers, he added, referring to his right to hire and fire policymakers by presidential decree, a power he awarded himself last summer.

Erdoğan is tightening his control over the central bank after losing the mayorships of Istanbul and Ankara in local elections that concluded last month. He is known as an opponent of interest rates, saying higher rates cause inflation. The central bank delayed rate hikes during a currency crisis last year due to government pressure.

Governor Murat Çetinkaya was dismissed because he didn’t follow government demands, Erdoğan said. The president has appointed Murat Uysal, Çetinkaya’s deputy, as the new governor.

The government is in charge of the economy, Erdoğan said.

“You will soon see what form our interest policy will take,” Erdoğan said, labelling opponents of his weekend decision as “faizci”, which translates to people who support and enjoy the benefits of high interest rates.

Çetinkaya raised the bank’s benchmark lending rate by 625 basis points to 24 percent in September to support the lira, which had dropped to a record low due to a political crisis with the United States over the detention of a U.S. pastor and concern about an overheating economy.

While Çetinkaya and the Monetary Policy Committee have kept the rate on hold since then, Erdoğan and his government have flooded the Turkish economy with cheap loans from state-run banks and cut taxes on items such as cars, fridges and holidays to kickstart economic growth.

Uysal is known as an interest rate dove. Erdoğan termed him as “a friend in the finance industry” in comments to the Turkish press published earlier on Wednesday.

Turkey’s economy entered a recession in the second half of last year but grew again on a quarterly basis in the first three months of 2019. Meanwhile inflation has slowed to 15.7 percent in June from 25.2 percent in October, a 15-year high.

The lira lost 28 percent of its value last year and has dropped a further 8 percent since January. It rose 0.3 percent to 5.71 per dollar as of 4:40 p.m. local time in Istanbul.

Central bank policymakers are next due to meet on interest rates on July 25.

Erdoğan ruled out seeking assistance from the IMF to help the economy. A previous programme expired in 2008. Turkey has had 19 standby accords with the Washington-based fund.

“There are those who propose the IMF. That door is closed,” he said.

“We will confine these periods to history by speeding up our own reforms and strengthening our defences to external shocks,” Erdoğan said.