New Turkish central bank official said Turkey drowned in high interest rates

Yusuf Tuna, appointed as a member of the Turkish central bank’s monetary committee by President Recep Tayyip Erdoğan overnight on Wednesday, has opposed high interest rates in the country and called for large cuts during 2014, when the Federal Reserve was withdrawing monetary stimulus and Turkey’s central bank had hiked rates.

In comments reported by local media at an economic panel in Istanbul in August 2014, which was also attended by U.S. geopolitical forecaster George Friedman, Tuna said Turkey had been “drowning in the grip of high interest rates for years”. Big hikes to interest rates were fine in theory, but incorrect in practice, he said.

Turkey’s central bank had raised its benchmark interest rate aggressively earlier the same year to help bolster the lira amid pressure on emerging market currencies. In May 2014, it cut them by 50 basis points, a step Tuna said was insufficient.

Speaking in his capacity as deputy rector of Istanbul Commerce University, Tuna said the central bank must act in line with the wishes of the government when it came to economic policy and show bravery. He called for a 200-300 basis point cut to interest rates, which he said would not hurt the lira because there was political stability in the country.

“In the management of the economy, it (the central bank) has to obey and be subordinate to the government. It has to take risks,” said Tuna.

Tuna also criticised high interest rates for their negative impact on the construction sector.

Erdoğan appointed Tuna after sacking three top officials of the central bank overnight. Erdoğan has called for rate cuts after appointing governor Şahap Kavcıoğlu in March. The central bank lowered its benchmark interest rate to 18 percent from 19 percent last month even after inflation accelerated to close to 20 percent.

The Turkish lira slumped to a fresh record low of 9.18 per dollar on Thursday, taking losses this year to almost 20 percent, due to concerns among investors that the central bank will cut rates again at a meeting next week. It was trading down 0.6 percent at 9.13 per dollar as of 11:06 a.m. local time.

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