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Turkish central bank sets out case against sharp rate cuts

Data on Wednesday showed the Turkish economy grew less than expected in the second quarter

Published: Updated:

Turkey’s central bank governor set out his case against the sharp cut in interest rates championed by some in government on Thursday, saying it might prompt Turks to hoard dollars and that growth would in any case pick up towards the end of the year.

Speaking at a conference in the Black Sea town of Kastamonu, Erdem Basci said growth was expected to improve towards the fourth quarter after a slight slowdown in the second and that inflation was running at the upper limit of the bank’s forecasts.

Data on Wednesday showed the Turkish economy grew less than expected in the second quarter, increasing political pressure on the bank to cut rates further, and helping send the lira to its lowest for more than five months.

The ruling AK Party has a strong record on the economy and can ill afford a slowdown in the run-up to next June’s election.

Frequent critic

President Recep Tayyip Erdogan, prime minister until last month, has been a frequent critic of central bank policy, urging sharper rate cuts to spur growth. Economy Minister Nihat Zeybekci said the latest growth figures justified that stance.

Basci said the central bank would maintain its tight monetary policy until there is a significant improvement in the inflation outlook.

Ratings agency Fitch warned on Thursday that the central bank may face growing political pressure to cut rates despite rising inflation if the government pursues populist economic policies in the run-up to the election.