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Southeast Europe
May 18, 2018 www.intellinews.com I Page 14
Erdogan’s interview from hell
bne IntelliNews
For central bankers trying to defend the beleaguered Turkish lira (TRY), President Recep Tayyip Erdogan’s Bloomberg TV interview on May 15 was the interview from hell.
The currency was already down around 12% against the dollar in the year to date on an ugly mix of do- mestic and international negatives — and the hope was that the president, although an unorthodox proponent of cheaper money to drive growth amid Turkey’s overheating economy, would at least nod to a reality in which the Central Bank of the Republic of Turkey (CBRT), is still equipped with independent monetary authority.
The hope proved severely misplaced. There must have been investors holding their heads in their hands as Erdogan proceeded to tell the interviewer that should he be returned to power as the country’s first executive president in the June 24 snap election — under constitutional changes granting the presi- dent sweeping powers that were narrowly approved in a referendum last year — he planned to tighten his grip on the economy and assume a greater role in setting monetary policy.
“I will take the responsibility as the indisputable head of the executive in respect of the steps to be taken and decisions on these issues,” Erdogan, who gave the interview in London during a three-day visit to the UK, stated. “[Citizens] will hold the president accountable. Since they will ask the president about it, we have to give off the image of a president who is effective in monetary policies. This may make some uncomfortable. But we have to do it. Because it’s those who rule the state who are accountable to the citizens.”
By halfway through the trading day on May 16, the dollar was fetching an unprecedented TRY4.5011. Subsequent efforts by the CBRT to reassure the markets it was monitoring the situation and was prepared to take “necessary” measures brought it back to TRY4.4654 by early evening on May 17, but the markets remained rattled. In a note to clients, Piotr Matys, an emerging markets forex strategist at Rabobank, said: “The central bank has to announce concrete measures very soon, or the respite for the Turkish currency and local assets will not last long.”
“Erdogan ‘unchained’”
As astonished investors tried to fathom, as one investor said to Reuters, “Why the hell you would come to London, and basically send this message to institutional investors which is exactly what they did not want to hear?”, Timothy Ash, emerging markets sovereign strategist at BlueBay Asset Management, described the Turkish president’s appearance as “Er- dogan ‘unchained’”.
Investors in Turkey “need plain vanilla central bank- ing and not some big Erdoganite economic experi- ment based on little/weak economic foundations,” Ash said in a note on May 15.
He added: “I think in the Bloomberg interview his comments on interest rates and central bank in- dependence were pretty clear cut. He wants to cut policy rates — which kind of goes against what Moody's, the IMF, S&P and I think most market com- mentators are now suggesting in response to what seems to be clear evidence of overheating in the Turkish economy.
“He also argued against classic interest rate theory