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VAgainst the backdrop of weak economic development and dramatic currency devaluation, Turkish President Recep Tayyip Erdogan has promised far-reaching economic reforms. Speaking to MPs from his ruling party, the AKP, he announced measures in Ankara on Wednesday to improve the investment climate and improve economic policy. It is important to rebuild both depleted foreign reserves and confidence in the currency, he said.
“We will achieve our objectives by building an economic policy on three pillars: price stability, financial stability and macroeconomic stability. We are preparing a favorable environment for long-term savings and investment, ”Erdogan said, according to a report by the semi-public news agency Anadolu. He will not refrain from administering the proper medicine “even if it is bitter.” That sounded like a departure from his mantra that higher interest rates, as called for by economists to combat inflation, are poison to the economy.
Interest rates as a “cause of inflation”
In the foreign exchange market, the exchange rate for the local currency, the lira, suddenly jumped several percent. At 7.88 lire, a dollar cost less than it had cost for weeks. Last Friday, dollar buyers had to pay 8.58 lire for one dollar. The exchange rate of the lira against the euro also improved significantly to 9.30 from 10.19 lira on Friday.
Erdogan’s speech was preceded by two major personnel changes. On Saturday he had appointed a new central bank governor, on Tuesday successor to his finance minister and son-in-law Berat Albayrak, who surprisingly resigned on Sunday. His successor, Lütfi Elvan, had promised that Turkey would fight inflation and maintain discipline in public spending.
That had already fueled hopes for a change in financial and monetary policy, which were strengthened by Erdogan’s speech. He said Turkey will focus more on regaining confidence and credibility in economic policy. On the other hand, he reiterated his assertion that interest rates are “the cause of inflation.”
However, this could reinforce the concern that analysts have often expressed after the most recent revision at the top of the central bank that central bank independence will continue to erode. Since the next Central Bank Council meeting announced for Nov. 19, investors are expecting a significant increase in the key interest rate above the current level of 10.25 percent.
Turkey will speak with international investors about the opportunities and potential for commitments in Turkey, Erdogan said, according to Anadolu news agency. It’s about more stability, growth and jobs. The country will also take new measures to strengthen the rule of law in the coming months, the president announced.
