Deputy PM accuses Central Bank of not being supportive on production
by Seda Tabak
ISTANBULJan 01, 2015 - 12:00 am GMT+3
by Seda Tabak
Jan 01, 2015 12:00 am
During an interview with Turkish daily newspaper Sabah, Deputy Prime Minister Numan Kurtulmuş chastised the central bank for not cutting interest rates and asked, "are you the central bank of another country?" saying that this is a great obstacle for Turkey in achieving its 2023 goals.
Kurtulmuş noted that Turkey should grow by at least 5.5-6 percent annually to achieve its 2023 goals, adding: "Interest rates are often very high. SMEs [Small and Medium Sized Enterprises], which constitute 65 percent of the Turkish economy, encounter a financing cost of around 15 percent, which is not sustainable for a long period. Interest rates should be brought down to reasonable levels so that Turkey can reach its 2023 goals and development objectives, and attain a significant growth rate. Until the 2008 crisis, there was plenty of spending power in the world, and during this period, we attracted a considerable amount of money from abroad. This 12-year period was a process of change in the economy. We achieved a macro-economic balance, which is a great success."
Kurtulmuş underlined the necessity that Turkey should change: "To this end, we should produce abundantly, develop world-class brands, invest in high technology and remove shortcomings in savings. Interest rates should be reduced to sustain the middle class. While changing, Turkey cannot survive only with the economic goals set by Ankara. Therefore, all cities should be invigorated, and we are doing this with the Urban Economic Forum."
In response to the question of whether there are any developments on amending the Central Bank Law, Kurtulmuş stated: "The central bank and the government cannot be two elements unrelated to each other. We have never discussed the instrumental independence of the central bank, so it does not need to consult the government about its monetary policies. But, it cannot be independent from the government's policies. The central bank has an inflation target and is responsible for price stability. However, a country's economic policy is not just about price stability. There should be a balance between inflation, employment, production and interest rates. This is what a successful economy is. As in the U.S., the objectives of the Central Bank Law should be revised; it should equivalently target price stability and growth, as well as observing employment. We will achieve this as soon as possible." Concerning what would be done to encourage banks to lend to industries, Kurtulmuş said that big industrialists do not have trouble with funding, as banks give them loans, "What is important is to be generous to SMEs. In addition, state bank loans could be increased to strengthen the middle class."
In South Korea, banks must grant 20 percent of total loans to SMEs, Kurtulmuş said, suggesting that Turkey could introduce a similar practice.
Even though Turkey's per capita income has been $10,000 for five years, Turkey has not yet fallen into the middle income trap, said Kurtulmuş. "We should increase production in order to avoid this trap. It was so difficult to increase [per capita income] from $3,000 to $10,000, but we cannot remain at this level."
Kurtulmuş described the decline in oil prices as an advantage for Turkey. If we can use this large amount of gain for production, it would help Turkey advance, Kurtulmuş concluded. The Monetary Policy Committee of the Central Bank of the Republic of Turkey (CBRT) had kept short-term interest rates constant for the fifth month in a row. The board determined the numbers as the one-week repo rate at 8.25 percent, marginal funding rate at 11.25 percent, interest rate on borrowing facilities provided for primary dealers via repo transactions at 10.75 percent and borrowing rate at 7.5 percent.
Keep up to date with what’s happening in Turkey,
it’s region and the world.
You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.