Ankara - Turkey's government will maintain its calls for lower interest rates following Prime Minister Tayyip Erdogan's victory in the country's first direct presidential election, the economy minister said on Monday.
Turkey has emerged as a regional economic force during more than a decade under Erdogan as prime minister, his firm leadership following a long period of economic chaos and political drift in the nation of 77 million.
But there are longer-term concerns about too sharp a concentration of power in the hands of a man whose views on the economy can be unorthodox - such as his conviction that high interest rates cause high inflation and his frequent demands that the central bank reduce them.
Economy Minister Nihat Zeybekci told Reuters in an interview that the central bank's core mandate for price stability should be expanded to include employment and growth, although he added this would not be a top priority for the government in the coming period.
The need to consider additional factors beyond inflation could give the central bank more impetus for lowering rates.
“The central bank's interest rates have to come down. The central bank has to be ahead of the market. If you follow the market, then the market starts managing you,” said Zeybekci, who has repeatedly called for rates to be lowered.
“Our policy on interest rates is clear. We believe that interest rates are important in Turkey for the revival of domestic demand, investment and growth,” he said.
Erdogan won close to 52 percent of the vote in Sunday's presidential election, a narrower margin of victory than polls had suggested but still 13 points more than his nearest rival, and enough to avoid the need for a second round runoff.
Erdogan had said ahead of the vote that there would be no deviation from economic policies if he won.
“This (electoral) message means the approval of policies that were implemented up to now and the continuation of political and economic policies,” Zeybekci said, acknowledging the result had not been as strong as some of Erdogan's supporters had hoped.
“It also carries a bit of a warning. We understood all this very clearly,” he said.
Zeybekci said interest rates needed to come down in line with inflation expectations, pointing out that while annual inflation was currently running at 9.3 percent, forward expectations for 12 months' ahead are at around 7 percent.
“We see interest rates as an important factor in cost inflation.”
The central bank has already cut its main one-week repo rate by 175 points to 8.25 percent since May, which some economists see as hard to justify given persistently high inflation.
Rating agency Fitch warned on Monday that Turkey's policy coherence and credibility were already weaker than peers, largely because of Erdogan's pressure on the central bank to cut rates.
Zeybekci said Turkey would achieve its target of 4 percent growth this year, but that growth would need to accelerate thereafter to at least 5 percent annually if it is to reach its targets for 2023, when it aims to be one of the world's top 10 economies.
He said Turkey had not been in contact with Moody's, after speculation among market analysts that the government had dissuaded the ratings agency from publishing an updated report on the country two days ahead of the presidential election.
Moody's had been expected to give a regular update on Turkey on Friday but said in a statement that it had not updated its rating, saying its calendar only designates the “potential” release of updates. - Reuters