Turkey’s main opposition party lashed out Friday at Central Bank’s latest measures in a bid to stay strong against a possible crisis in the West, stating that the Turkish government and the “independent” regulator created confusion instead of clearing up the situation. Economists also said they found the measures risky, speaking to the Hürriyet Daily News on Friday.
“Only a week ago the bank was saying the economy was as strong as it had ever been before. What happened now that the bank started to take crisis measures?” asked Faik Öztrak, deputy president of the main opposition Republican People’s Party, or CHP.
Recalling Central Bank Gov. Erdem Başçı’s statements last week that there was no risk of crisis, Öztrak said, “But now there come crisis measures from the same authority.” Öztrak accused the Central Bank of being in denial of its own decisions. He accused the Turkish government of creating “total confusion” in the Turkish economy.
The Central Bank lowered its key policy rate from 6.25 percent to 5.75 percent on Thursday after an extraordinary meeting of the monetary policy board. It also raised the overnight borrowing rate from 1.5 to 5.0 percent to “reduce volatility” in short-term interest rates. The bank also surprisingly cut the reserve requirement rate for foreign exchange by 0.5 percent on Friday and decided to sell $50 million in its first foreign exchange selling auction, which was announced at the Thursday meeting.
On the other hand, Turkish ministers rolled up their sleeves to clarify the bank’s still unorthodox policy that surprised the markets in the second half of the week.
The Central Bank did not “rise to the bait” regarding pressure from “some lobbyists pushing for an interest rate increase,“ said Turkish Economy Minister Zafer Çağlayan at a meeting with Turkish investors on Friday. The minister said the Central Bank’s latest decisions were “very accurate” and “well timed.”
Global economic problems are not severe enough to be described as a crisis, according to the Turkish Finance Minister Mehmet Şimşek. “We should be cautious, but there is no need to panic.” Citing concerns over the eurozone’s public debt crisis and troubles in the U.S. economy, the minister said the global economy had been slowing down but not contracting. “However, there are concerns over a possible contraction.”
Economists, however, said they were skeptical about the sudden change in the Central Bank’s policy.
“The pressure over the growth of the U.S. economy must have been an indicator for Central Bank’s decision,” Banu Kıvcı Tokalı, the chief economist of Destek Securities, said in a phone interview. “The markets are not sure whether the bank has made the right decisions or not,” she said, noting that the measures were now on a “reverse path” compared to central banks in other emerging economies.
The decisions taken by the bank would only fit in the frame of a crisis scenario, Tokalı said, adding that the measures were rather “too early” considering the recent global economic indicators. Calling the measures “too risky,” Tokalı said that despite the foreign exchange selling auctions, the “turbulence” in rates is likely to continue for the next few months.
The Central Bank might have some data indicating reasons for such measures, according to Ertuğ Yaşar, an economist, noting that the slump by nearly 5 percent in most of the stock exchanges on Friday signaled a slowdown in global growth. “The measures were too sharp,” said Yaşar, adding that the bank’s so-called proactive moves might not be right “as there is not data yet in our hand to back this.” He also said the next three months would be significantly decisive.
Turkish Prime Minister Recep Tayyip Erdoğan said on July 27, “This time it seems like the crisis won’t even touch [Turkey] at all,” adding that the country was in a better position compared to the past.
Commenting on the PM’s projections, Haluk Börümcekçi, chief economist of EFG Securities said, “Turkey will be definitely affected by a possible second dip as it would slump exports and production of the country to a great extent.” The Central Bank’s moves might be aimed at boosting domestic demand to make up for possible losses in case of a crisis, he added.
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Source : hurriyetdailynews.com
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