Turkey's Erdogan calls for rate cut, says no early election

Reuters News
Posted: Apr 04, 2014 3:56 AM

By Nick Tattersall and Gulsen Solaker

ANKARA (Reuters) - Turkish Prime Minister Tayyip Erdogan called for an emergency interest rate cut, ruled out early elections and spoke against the lifting of a Twitter ban on Friday, signalling no let-up in his domineering style ahead of an expected run for president.

Returning to the public eye after several days of rest following his AK Party's strong showing in local polls on Sunday, Erdogan said markets had rallied on the back of the election results and lower interest rates would encourage investors to pump more money into Turkey.

But his efforts to dictate monetary policy unnerved the markets, with the lira weakening on fears that political pressure to keep rates low could compromise the central bank's ability to fight rising inflation and external imbalances.

The currency later recovered its losses after solid U.S. March jobs data raised hopes that a sharp tapering of bond purchases by the United States would be less likely - a factor which boosted emerging market assets.

"Yields are falling. In line with this, the central bank will probably convene an extraordinary monetary policy committee meeting," Erdogan said, adding that it should "review" its decision to raise rates at an emergency meeting in January.

"Just like it convened extraordinarily last time to hike rates, this time it should convene and lower interest rates," he told a news conference before leaving on a trip to Azerbaijan.

The head of the main opposition party, Kemal Kilicdaroglu of the CHP, said the comments would damage Turkey's appeal for foreign investors: "He is directly intervening ... and this damages the credibility of the central bank in international markets," Kilicdaroglu told Reuters.

"The prime minister can't govern the economy."

Erdogan's AK Party dominated the electoral map in Sunday's local elections, retaining control of the two biggest cities, Istanbul and Ankara, and raising its share of the national vote despite a corruption scandal rocking the government and a feud with an influential U.S.-based Islamic cleric.

Investors largely welcomed the outcome, taking it is as a sign of continuity after a turbulent election campaign, but they also fear the result could fuel Erdogan's domineering instincts, including his readiness to interfere in monetary policy.

"Suffice to say, very negative and disruptive comments," Timothy Ash, head of emerging markets research at Standard Bank in London, said of Erdogan's latest words.

"Politicians should steer clear of making such specific comments over monetary policy in countries which are supposed to operate with independent central banks," he said.

There was no immediate comment from the central bank but the timing came a day after governor Erdem Basci sought to reassure investors at an event in London that its current tight monetary policy was sufficient to tackle inflation.

The bank stunned markets with a sharp rate hike at the end of January, ignoring political pressure as it battled to defend the lira following its fall to record lows.

"Mr. Erdogan appears to be on the warpath after his election victory and he's about to make matters even more difficult for Turkey's central bank, which has only just begun establishing credibility with the markets," said Nicholas Spiro, head of Spiro Sovereign Strategy.


Turkey's growth in the last decade has largely been based on the stability brought by Erdogan, who took office in 2002 after a series of unstable coalition governments in the 1990s ran into repeated balance of payments problems and economic crises.

Keen to maintain that reputation, Erdogan has railed against what he describes as an "interest rate lobby" of speculators seeking to undermine the economy by pushing for higher rates.

But economic headwinds are gathering, with growth slowing, inflation persistently above target and consumer confidence hitting a four-year low in February. Ratings agency Fitch on Friday cut its growth forecasts for this year and next, although it kept its BBB- investment grade credit rating.

A slowing economy had been seen as one argument for bringing forward a parliamentary election due in June next year to run alongside a presidential race this August. But Erdogan ruled out such a move, saying it would only serve to unnerve investors.

"Never early elections. This is a principle of our party. We should get on with our jobs," he said.

Erdogan has made no secret of his desire to run in the presidential race, Turkey's first direct election for its highest office, a move his opponents say would reinforce his authoritarian tendencies.

Turkey drew international condemnation for blocking access to social networking site Twitter as the government battled leaks in a corruption scandal in the run-up to Sunday's polls. The ban was lifted after the constitutional court ruled it violated freedom of expression, a decision Erdogan said the government had to accept but which he did not respect.

"A person who does not believe in the separation of powers, who rejects the separation of powers, is called a dictator," the CHP's Kilicdaroglu said in response to Erdogan's comments.

Erdogan said he favoured keeping a three-term limit for AKP members of parliament, a rule that would prevent him from seeking a fourth term as prime minister, further reinforcing the expectation that he will make a bid for the presidency.

There had been speculation in Turkey that the AK Party could also change its internal rules to enable Erdogan to serve a fourth term as prime minister.

President Abdullah Gul is seen as a potential future prime minister should Erdogan run to succeed him as head of state. Both are founding members of the ruling party, although their relationship has at times appeared strained.

"I share the view of Gul that we can discuss among ourselves the presidency and reach a decision," Erdogan said, keeping his cards close to his chest.

(Additional reporting by Daren Butler, Seda Sezer, Ece Toksabay, Nevzat Devranoglu in Istanbul; Writing by Nick Tattersall; Editing by Andrew Roche, Giles Elgood and Alastair Macdonald)