Page 13 - bne IntelliNews weekly newspaper June 23

Southeast Europe
June 23, 2017 www.intellinews.com I Page 13
Despite being the leader of the senior ruling party, Dragnea has so far been unable to take up the prime minister post himself since he has a suspended sentence for voter manipulation; no one with a criminal conviction is allowed to hold
Turkish PM issues ‘final’ ultimatum to banks to cut rates
bne IntelliNews
Turkish Prime Minister Binali Yildirim has given the country’s lenders a last chance to ease interest rates, stating that the government will take meas- ures if they fail to act, Reuters reported on June 22.
The government wants the banks to support economic activity by offering cheaper loans. Its stance is, however, widely seen as putting overt political pressure on the Central Bank of the Republic of Turkey to cut its rates, thus raising questions over whether the CBRT can retain its independence.
“I am making the last call before the train leaves: either you adopt a reasonable interest rate or we will take measures,” Yildirim was reported as tell- ing the banks. “Our bankers should not regard this as a threat – we have instruments at our disposal.”
Turkish banks have for a long time been under political pressure to cut interest rates. President Recep Tayyip Erdogan has been calling on the banks to offer more loans at more affordable rates to boost economic activity. Erdogan lately renewed his attack on interest rates by saying that he sees high interest rates as a tool of exploitation.
Erdogan, who has even declared himself “an enemy of interest rates”, on June 17 once
public office in Romania. Instead, he picked a substitute from within the party, with his second choice, Grindeanu, taking office earlier this year. However, relations between the two later soured dramatically.
Prime Minister Binali Yildirim: "I am making the last call before the train leaves."
again attacked high rates. “We will continue to intervene in interest rates,” he declared. Erdogan was probably suggesting by that that he would continue to criticise the central bank’s policies. “In an environment of high interest rates, investment will stop and no new jobs will be created,” he added.
Turkish banks have actually ramped up their lending since the government pledged to make TRY250bn available to businesses under the credit guarantee fund (CGF) scheme. Their total lending rose by 23% y/y to hit TRY1.86tn at the end of April.
The government is also anxious about unemployment. It has not fallen significantly despite the GDP expansion observed over the last two consecutive quarters. The ruling AKP wants to see higher growth and lower jobless rates before the 2019 election. It
is thus asking the banks to pump more money into the economy through loans.
However, Turkish banks are also under pressure from rising funding costs generated by cuts in their ratings, rising inflation, rising deposit rates and the Turkish central bank’s implicit funding rate hikes (by forcing them to use the late liquid- ity window).