Turkish President Tayyip Erdogan heaped pressure on the central bank on Tuesday to continue slashing interest rates, after it already cut by 1,000 points since July, saying both rates and inflation would hopefully hit single-digits next year.
Erdogan, who in July ousted the former central bank chief for not following instructions, was cited by broadcaster NTV as saying rates and inflation were on a path to desired levels “despite all the pressure” and would remain there permanently.
Weeks after taking the reins this summer, new bank Governor Murat Uysal began an aggressive easing cycle in response to a slide in inflation, which hit 8.5 percent last month but is expected to rebound in coming months.
The bank has cut its policy rate to 14 percent from 24 percent in less than four months, more than investors and economists expected even while the Turkish lira has remained relatively stable.
While Uysal said last month, the bank had already “used a significant portion of the space” to ease policy, signaling cuts were coming to an end, concerns remain that government pressure will push the bank to go too far and hurt the lira.
“Despite all the pressure, interest rates and inflation in Turkey are on the path to desired levels. By triggering each other, inflation and interest rates will hopefully permanently fall to single digits in 2020,” NTV quoted Erdogan as telling reporters on a return flight from Qatar.
“When they hit single digits, the currency and economy in Turkey will be very different. Nobody should have any concerns about this,” he added.
Erdogan has repeatedly pressed for easier monetary policy and criticized the former bank governor whom he ousted, Murat Cetinkaya, for hiking too aggressively last year in the face of Turkey's currency crisis that led to a recession.
Traders expect the policy rate to fall below 13 percent in the next three months, and toward 12 percent in six months’ time, according to money markets pricing on Tuesday.
The central bank expects inflation, which surged above 25 percent in September last year during the crisis, to end 2019 at 12 percent. So-called base effects, thanks to last year’s volatility, have driven down price readings this year.
The European Bank for Reconstruction and Development said last week the central bank should moderate the pace of future rate cuts in order to avoid a resurgence of inflation.