Pointing to the increase in the dollar exchange rate against the Turkish lira and speculations about the so-called crises between the government and the Central Bank of the Republic of Turkey (CBRT), Prime Minister Ahmet Davutoğlu said that nobody should expect Turkey to suffer from global instability. Speaking at his parliamentary group meeting yesterday, Davutoğlu stressed that while certain circles in Turkey are speculating about the economy's susceptibility to global fluctuations, it is evident that the economy is doing much better than the economy of many other countries when one compares economic indicators. Davutoğlu also held a private meeting yesterday with finance heads and relevant ministers. The meeting was the second that the prime minister has held after the exchange rate hikes.
He also met with the top finance administrators on Sunday amid concerns about the Lira's status. The lira hit record lows against the dollar on Friday, reaching 2.64 following better-than-expected employment figures from the U.S., which was followed by a rate of 2.62 yesterday. However, yesterday's meeting was attended by Deputy Prime Ministers Ali Babacan, responsible for the economy, and Numan Kurtulmuş, Economy Minister Nihat Zeybekci, Finance Minister Mehmet Şimşek, CBRT Governor Erdem Başçı, Science, Energy and Natural Resources Minister Taner Yıldız, Industry and Technology Minister Fikri Işık, Development Minister Cevdet Yılmaz, Food, Agriculture and Livestock Minister Mehdi Eker, Customs and Trade Minister Nurettin Canikli, Capital Markets Board Head Vahdettin Ertaş, acting chairman of the Banking Regulation and Supervision Agency Mutalip Ünal and Deputy Undersecretary of the Treasury Cavit Dağdaş.
On the fluctuation of foreign exchange rates, Davutoğlu underscored at the group meeting that this was a reflection of the international fluctuation in Turkey due to dollar and euro parities, and is not a crisis specific to Turkey. "There are no signs or indicators of a crisis in any sector in Turkey," Davutoğlu said. He also called out the speculators, and said that no one should count on anything, since at the first sign of an economic crisis, the government would take the necessary precautions and steps to address it. Davutoğlu also emphasized that while the fluctuation continues all around the world, foreign exchange rates are stabilizing in Turkey. He said that the meetings held in New York indicated that all investors and economic observers agree that Turkey has established economic stability. "While our budget deficit was 10.4 percent in 2002, it was 0.7 percent in 2014. Hopefully, it will be lowered to 0.5 percent in 2015 and to 0.1 percent by 2017," Davutoğlu said, adding that Turkey's budget was strong. He also announced that thanks to the new incentive system, certificates for new investments worth TL 18.6 billion ($7.090 billion) were issued in the last two-and-a-half years.
Davutoğlu also said that while Turkey's biggest problem had been high inflation rates in the past, measures are being taken to lower the inflation rate, while also achieving economic growth by lowering interest rates. He stressed that while this is the case in Turkey, there is a recession in Europe. Moreover, European countries are trying to increase inflation rates by taking certain measures. While the inflation rate was 9.2 percent in November 2014, 8.2 percent in December 2014 and 7.2 percent in January, the rate has been dropping month after month in Turkey. "Unfortunately, due to seasonal effects in the agriculture sector, there has been a small increase in inflation, as it hit 7.6 percent, but the decreasing trend is expected to continue in the coming months," Davutoğlu added. He also underlined that the inflation rate, which was around 9.4 percent when the government program was announced, is currently around 7.84 percent.
Central bank intervenes in response to rising dollar exchange rates
The Central Bank of the Republic of Turkey (CBRT) has taken a step to intervene in response to the rise of dollar exchange rates. According to the CBRT announcement regarding foreign exchange liquidity, the bank will provide $1.5 billion in liquidity to the markets by changing the ratios of reserve options on March 13. It was stated that by moderately increasing the required reserve ratios for short-term foreign exchange liabilities except for core liabilities by March 27, approximately $1.3 billion will be added to TCMB's reserves. In this regard, liquidity will be provided to the banking system to cover their foreign exchange requirements and long-term borrowing will be supported.
The bank had also reduced the rates applied to the banks' one-week maturity borrowings on Monday. According to the CBRT, the rates applied to banks' one-week maturity borrowings from the central bank have been reduced from 7.5 percent to 4.5 percent for the dollar and from 6.5 percent to 2.5 percent for the euro, effective from March 10. Following the CBRT's move, the dollar had decreased from 2.63 to 2.59 against the Turkish lira. The euro had also decreased from 2.85 to 2.82.
