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Turkey Needs Radical Rate Cut

Turkey Needs Radical Rate Cut
Turkey Needs Radical Rate Cut

Turkey’s central bank should “radically” curb borrowing costs to boost investments and make Turkish companies more competitive in world markets, Economy Minister Mustafa Elitas told Bloomberg.

The economy needs a rate cut deep enough to surprise the market, unlike last month’s anticipated reduction of 25 basis points in the overnight lending rate, Elitas said in an interview in the Black Sea port city of Samsun. Borrowing costs must drop more sharply so manufacturers can make investments rather than interest payments, he said. He didn’t quantify what he meant by a “radical” cut, Bloomberg reported.

“There is no way to calculate this amount. A radical rate is one that really surprises the public. That’s how this should be done,” Elitas said. “If the public expectation is 25 basis points, that is not a radical decision.”

Elitas numbers among a wide chorus of critics of the central bank’s monetary policy, led by President Recep Tayyip Erdogan. Monetary policy decisions are crucial to investors because the government relies on foreign-currency flows to plug its current-account deficit. Erdogan says high borrowing costs have stifled growth.

The central bank should overcome the “2001 syndrome,” Elitas said, referring to the banking crisis that pushed the Turkish economy into a recession and battered the currency. The government is not telling the bank what to do, it is merely suggesting it review its considerations, he said.

“If a radical decision can be made with courage, if a chance is given, then we can extract investment potential and channel the capital that is going to interest rates to improve the economy and increase our chances of competition,” Elitas said.

He also said the central bank could extend the duration of its repo auction from the current one week. He didn’t elaborate.

Financialtribune.com