A repeated call for the central bank to reduce interest rates
by Şeyma Eraz
ISTANBULJan 17, 2015 - 12:00 am GMT+3
by Şeyma Eraz
Jan 17, 2015 12:00 am
President Recep Tayyip Erdoğan called on the Central Bank of the Republic of Turkey (CBRT) once again on Friday to decrease interest rates in order to reduce the cost of production to support the economy. Pointing to the economic transformation Turkey has undergone, the president stated that the biggest obstacle the country faces is high interest rates. The current benchmark interest rate is 8.25 percent, and has caused the government and the president to criticize the CBRT several times. The CBRT kept short-term interest rates constant for the fifth month in a row through December, and now eyes are on the decision the bank will make in January.
With falling oil prices contributing to energy dependent countries' economies, central banks have started to lower their interest rates. For example, this week the Indian Central Bank lowered rates earlier than expected. Erdoğan appealed to members of the Young Businessmen Confederation of Turkey in the presidential palace. Giving Azerbaijan as an example, the president said they have to recalculate their budget, which they planned according to an oil price level of $60 per barrel, as an oil producing country. He further said that during his meeting with Azerbaijani President Ilham Aliyev on Thursday, Aliyev stated they are facing financial problems on investment projects because of incorrect forecasts of their budget. Oil prices dropped to $45 per barrel this week, and Erdoğan said, "Azerbaijan is experiencing trouble for $15, and since we are among those who are benefiting, why do we not get the benefit? While other central banks cut their interest rates, what is our central bank waiting for?"
Besides contributing to the current account deficit, oil prices should also support Turkish exports, according to the president. "Turkey's economy is based on exports. Our exporters need higher competitive power to be successful in international markets, which also means they need to reduce their costs," said Erdoğan, who added that Turkey needs investments and employment. He also said this would not last, and he is planning to have a meeting with CBRT chiefs. On the other hand, economists believe that the CBRT will announce interest rate cuts in the coming months, which will be positively affected by inflation.
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