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Central bank 'dragging Turkey down': Erdogan

Wednesday, February 4, 2015 - 23:01

[ANKARA] The Turkish central bank is seeking to drag Turkey down by refusing to aggressively cut interest rates, President Recep Tayyip Erdogan said on Wednesday, in a verbal assault that put new pressure on the lira.

Mr Erdogan, a vehement critic of the nominally independent central bank, also suggested that rate cuts would bring inflation down, in defiance of usual economic wisdom.

The central bank and its defiant governor Erdem Basci incurred the wrath of Mr Erdogan for rejecting an unscheduled rate cut this week after a fall in January inflation.

Mr Basci had indicated that annual inflation would have to fall under 7 per cent in January for a rate reduction but the figure turned out to be 7.24 per cent.

"Someone is seeking to drag us down with the help of interest rates," Mr Erdogan said in a speech in Ankara. "There are still some people who don't get it."

He said it was a "wrong argument" for interest rates to be set according to inflation.

"If you cut interest rates, inflation will fall too," he said.

Conventional economic theory - which guides central banks around the world - is that cutting interest rates adds to inflationary pressure by allowing more money in the economy.

Mr Erdogan also appeared to call into question the independence of the central bank.

"It is called an independent institution, but unfortunately this is where we end up. We have to be at a better place, we have to succeed in this."

The lira suffered a steep loss in value after his comments, trading at 2.4370 lira to the dollar.

The government wants aggressive cuts in rates - which were pushed up to avert a currency crisis last year - to revive flagging growth ahead of elections in June.

Turkey's economy is under a particular spotlight this year as Ankara holds the presidency of the G20 top world economies.

AFP