Erdogan threatens Central Bank independence

CLEMENS BILAN

Turkish President Recep Tayyip Erdogan responds to a question at the closing press conference of the G-20 summit in Hamburg, Germany, 08 July 2017.

Erdogan threatens Central Bank independence


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The Turkish Lira tumbled on Wednesday as President Erdogan promised to “deal with interest rates” after the June 24 elections.

Erdogan believes that rising interest rates are holding back investment.

Recep Tayyip Erdogan has always been vocal about his preferences for monetary policy, but markets are spooked by any suggestion of infringement of Central Bank independence. The President’s remarks on Wednesday saw the Turkish sovereign bond benchmark yield up by 500 basis points.

Meanwhile, Turkish inflation was pacing at 12,15% in May, up from 10,85% in April. Responding to market pressure, the Central Bank of Turkey has raised interest rates on May 23 and again on June 7, against the will of the President. On Wednesday, Erdogan made clear that this will be addressed after the elections.

During the electoral campaign, the Turkish Lira has lost approximately 25% of its value against the dollar.

Fears of political instability are not limited to a heavy-handed approach to monetary management. The President-elect will assume new powers, as a new Turkish constitution comes into force. Even if the ruling Justice and Development Party (AKP) loses its parliamentary majority, the President could choose to sideline the parliament and rule mostly by executive orders.

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