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Turkey's new central banker maps out rate cuts


TURKEY'S new central bank governor ended days of silence since his surprise appointment by President Recep Tayyip Erdogan with a message that hinted at restraint as he pivots toward interest-rate cuts.

Speaking in his first interview since his predecessor's ouster over a week ago, Murat Uysal said "there is room for manoeuvre in monetary policy" but vowed to preserve "a reasonable rate of real return" for investors. Adjusted for prices, Turkey has the highest borrowing costs in the world after inflation slowed more than forecast last month.

"The design of monetary-policy processes in the new period will be based on a data-focused approach that takes into account all macroeconomic indicators, primarily inflation and economic activity,'' Mr Uysal told state-run Anadolu Agency.

It's crucial to maintain a cautious policy "but the level of tightness here can best be described through real rates rather than nominal rates," he said.

Mr Erdogan has made clear he expects the central bank to heed his calls for rate cuts after dismissing Murat Cetinkaya following a policy pause that lasted for more than nine months. Convinced that higher interest rates cause inflation, the president on Sunday promised significantly lower borrowing costs by the end of the year.

In a short statement after his appointment, Mr Uysal said he would continue to implement monetary policy independently, in line with his mandate and authority.

With inflation down almost 5 percentage points so far this year, Turkey now boasts a real rate of 8.3 per cent, the highest among more than 50 major economies tracked by Bloomberg.

Mr Uysal, deputy governor since June 2016 who will lead his first rate meeting at the helm of the central bank on July 25, cited a decline in inflation expectations and improvement in pricing behaviour.

His emphasis on broader economic activity could mark a change from Mr Cetinkaya, who made inflation a focus. The Turkish central bank's primary objective "is to achieve and maintain price stability,'' according to its website.

The central bank will develop a framework that "is built upon both expectations and our own projections and maintains a reasonable rate of real return", Mr Uysal said. BLOOMBERG