Newly appointed Treasury and Finance Minister Mehmet Şimşek will take swift steps in coordination with the central bank, President Recep Tayyip Erdoğan said Wednesday, signaling that Türkiye would return to interest rate hikes to combat inflation, revamping policies centered around monetary stimulus.
Yet, Erdoğan stressed it was a mistake to suggest he had changed his own stance when it comes to interest rates.
Since winning reelection last month, Erdoğan has appointed Şimşek, who is highly regarded by financial markets, as well as a new central bank governor, Hafize Gaye Erkan, a former senior U.S.-based bank executive, in moves seen as heralding a switch to tighter interest rate policy.
In his first comments on monetary policy since the appointments, Erdoğan said he "accepted" the changes proposed by the economy chiefs, although he still disagreed with their views.
"Some of our friends should not fall into the error of (asking) 'Is the president going to make a serious change (concerning) interest rate policy?' I remain in the same position," he told reporters on a return flight from Azerbaijan.
"We accepted that (Şimşek) should take the necessary steps rapidly and effortlessly with the central bank."
Erdoğan's comments suggested that he had given the green light for interest rate hikes by the central bank.
Analysts at leading investment banks now expect the central bank to start ramping up rates at its monetary policy committee meeting on June 22.
Approach to rates remains same
Erdoğan said he is determined to lower inflation, which dropped to just below 40% in May, to single digits, adding that he maintains his "low inflation, low interest rate" policy.
A critic of high borrowing costs, Erdoğan had spent the past two years endorsing a "new economic model" that makes ultra-low interest rates a priority.
The model aimed at achieving price stability by slashing borrowing costs, boosting exports and flipping chronic current account deficits to surpluses.
Expectations that Ankara would return to orthodox policies strengthened after Erdoğan appointed Şimşek to the Finance Ministry and Erkan, a former co-CEO at First Republic Bank and managing director at Goldman Sachs, to the central bank.
Şimşek, 56, won the markets' confidence during terms as finance minister and deputy prime minister between 2009 and 2018. In his first remarks after taking office, he said the country has no choice but to return to "rational ground" in terms of economic policies.
Şimşek pledged to increase predictability and accelerate the structural transformation. He said fiscal policies and structural reforms would support Türkiye's central bank to help lower inflation.
Erdoğan said he told the new central bank governor about his expectations.
Asked if Erkan's appointment as the new central bank governor was his idea, he said that Şimşek pitched the idea of her appointment to him.
"We thought we would have a woman administrator for the central bank for once and we took this step. Of course, we told her of our expectations," he said.
"We hope that with these steps neither our treasury and finance minister nor our central bank will let us down," he added.
The Princeton-educated Erkan is the first woman at the helm of Türkiye's central bank, taking over from Sahap Kavcıoğlu, who spearheaded the easing drive that saw the monetary authority slashing its benchmark policy rate to 8.5% from 19% in 2021.
She was a managing director at the Goldman Sachs investment banking company and worked at San Francisco-based First Republic Bank, holding the post of co-CEO for six months in 2021. JPMorgan Chase took over the failed bank after U.S. regulators seized it in May.